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WASHINGTON - The Federal Reserve, trying to calm turmoil on Wall
Street, announced Friday that it will pump as much money as needed
into the U.S. financial system to help overcome the ill effects of a
spreading credit crunch.
The Fed, in a short statement, said it will provide "reserves as
necessary" to help the markets safely make their way. The central bank
did not provide details but said it would do all it can to "facilitate
the orderly functioning of financial markets."
The Fed pushed $38 billion in temporary reserves into the system
Friday, on top of a similar move the day before.
Financial markets in the United States and around the globe have been
shaken by fears about spreading credit problems that started with home
mortgages for those with tarnished credit histories. Investors are
worried that these problems will infect the larger financial system
and possibly hurt the U.S. economy.
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The Fed's action may have eased some investors' anxieties. The Dow
Jones industrials were down around 90 points in afternoon trading
Friday following much sharper losses near the start of the session.
Presidential spokeswoman Dana Perino said the Fed is an independent
body, and the White House will not comment on its decisions.
"But I can assure you that there are many of the president's advisers
who are keeping a very close eye on all the market activity and making
sure that policies are put in place to keep our economy strong and
growing," she told reporters in Kennebunkport, Maine, where President
Bush is spending the weekend.
The current financial turmoil provides the biggest test yet to Federal
Reserve Chairman Ben Bernanke, who took the helm last year.
The Fed's action comes one day after a financial panic about a credit
crunch swept through Europe. That prompted the Europeans to pump $130
billion into their financial system. The Fed moved Thursday to add an
extra $24 billion in temporary reserves to the U.S. banking system.
But that wasn't enough to comfort Wall Street, which suffered its
second-worst decline of the year that day.
The Fed on Friday chose not to cut a key interest rate, called the
federal funds rate, to address the problem. That interest rate still
stands at 5.25 percent. The funds rate is interest banks charge each
other on overnight loans and is the Fed's main lever to influence
economic activity.
Instead, the Fed is seeking to provide reassurance to investors that
the central bank will plow extra money into the U.S. financial system
to make sure the credit crunch doesn't worsen.
The Federal Reserve Bank of New York, which carries out the central
bank's market operation, moved to add $19 billion in temporary
reserves Friday morning. It pumped in another $16 billion in reserves
a couple of hours later, then $3 billion more in the afternoon.
"In current circumstances, depository institutions may experience
unusual funding needs because of dislocations in money and credit
markets," the Federal Reserve in Washington said in its statement.
It told banks that the Fed's discount window _ where banks can turn in
an emergency for short-term loans _ is available as a source of
funding.
After the Sept. 11, 2001, terror attacks, the Fed used the discount
window to extend billions of dollars worth of emergency loans to banks
to keep the financial system functioning.
The current meltdown in the housing and mortgage markets has caused
new home foreclosures to climb to record highs and has forced some
lenders out of business. Problems first sprouted in the market for
higher-risk or "subprime" mortgages, which are held by people with
poor credit or low incomes. But some problems have spilled over to
more creditworthy borrowers. That has led to tighter lending
standards, making credit harder to get for people and businesses.
The free flow of credit is important to the smooth functioning of the
national economy. Increasingly restrictive lending conditions can put
a damper on people's ability to buy big-ticket items such as homes,
cars and appliances. And it can crimp businesses' capital investment
and hiring. That reduced appetite by businesses and consumers would
slow overall economic activity.
Against this backdrop, Wall Street has careened wildly in recent
weeks.
Bernanke and his central bank colleagues, in a meeting on Tuesday,
acknowledged that these problems are posing increasing risks to the
economy. But they refrained from cutting interest rates and stuck to
their forecast that the economy will weather the financial storm and
grow gradually in the coming months.
One day later, Bush struck a reassuring tone about the turbulence on
Wall Street, saying he believes the markets will achieve a "soft
landing." The market ended Wednesday up by 154 points, but then went
into its nosedive on Thursday.
Street, announced Friday that it will pump as much money as needed
into the U.S. financial system to help overcome the ill effects of a
spreading credit crunch.
The Fed, in a short statement, said it will provide "reserves as
necessary" to help the markets safely make their way. The central bank
did not provide details but said it would do all it can to "facilitate
the orderly functioning of financial markets."
The Fed pushed $38 billion in temporary reserves into the system
Friday, on top of a similar move the day before.
Financial markets in the United States and around the globe have been
shaken by fears about spreading credit problems that started with home
mortgages for those with tarnished credit histories. Investors are
worried that these problems will infect the larger financial system
and possibly hurt the U.S. economy.
Top NewsTop Posts
Politics: Peter Smith: What'll Refocus America Faster; Another
Terrorist Attack or Bringing Back The Draft?
Business: Max Fraad Wolff: Life in the Bubble: House Prices and Net
Worth
Media: Heather Wood: Irresponsible Journalists of the Week: Tucker
Carlson and his Whitewashed Panel Discussing "Blackness"
Living Now: Esther Perel: The Mechanics Of Sex
Entertainment: 236.com: Federline Files for Custody: the Hotter of Two
Evils?
Politics: Iowa Straw Poll:
Who The Real Winner Is
Entertainment: Angelina: Since Brad "There's No Longer A Place For
That [Bisexuality] Or S&M In My Life"
Business: Dow Jones Ends Roller Coaster Week Slightly Down
Living Now: Woman Gives Birth To 14-lb. Boy-Naturally
Media: Chris Matthews Fawns Over The President
The Fed's action may have eased some investors' anxieties. The Dow
Jones industrials were down around 90 points in afternoon trading
Friday following much sharper losses near the start of the session.
Presidential spokeswoman Dana Perino said the Fed is an independent
body, and the White House will not comment on its decisions.
"But I can assure you that there are many of the president's advisers
who are keeping a very close eye on all the market activity and making
sure that policies are put in place to keep our economy strong and
growing," she told reporters in Kennebunkport, Maine, where President
Bush is spending the weekend.
The current financial turmoil provides the biggest test yet to Federal
Reserve Chairman Ben Bernanke, who took the helm last year.
The Fed's action comes one day after a financial panic about a credit
crunch swept through Europe. That prompted the Europeans to pump $130
billion into their financial system. The Fed moved Thursday to add an
extra $24 billion in temporary reserves to the U.S. banking system.
But that wasn't enough to comfort Wall Street, which suffered its
second-worst decline of the year that day.
The Fed on Friday chose not to cut a key interest rate, called the
federal funds rate, to address the problem. That interest rate still
stands at 5.25 percent. The funds rate is interest banks charge each
other on overnight loans and is the Fed's main lever to influence
economic activity.
Instead, the Fed is seeking to provide reassurance to investors that
the central bank will plow extra money into the U.S. financial system
to make sure the credit crunch doesn't worsen.
The Federal Reserve Bank of New York, which carries out the central
bank's market operation, moved to add $19 billion in temporary
reserves Friday morning. It pumped in another $16 billion in reserves
a couple of hours later, then $3 billion more in the afternoon.
"In current circumstances, depository institutions may experience
unusual funding needs because of dislocations in money and credit
markets," the Federal Reserve in Washington said in its statement.
It told banks that the Fed's discount window _ where banks can turn in
an emergency for short-term loans _ is available as a source of
funding.
After the Sept. 11, 2001, terror attacks, the Fed used the discount
window to extend billions of dollars worth of emergency loans to banks
to keep the financial system functioning.
The current meltdown in the housing and mortgage markets has caused
new home foreclosures to climb to record highs and has forced some
lenders out of business. Problems first sprouted in the market for
higher-risk or "subprime" mortgages, which are held by people with
poor credit or low incomes. But some problems have spilled over to
more creditworthy borrowers. That has led to tighter lending
standards, making credit harder to get for people and businesses.
The free flow of credit is important to the smooth functioning of the
national economy. Increasingly restrictive lending conditions can put
a damper on people's ability to buy big-ticket items such as homes,
cars and appliances. And it can crimp businesses' capital investment
and hiring. That reduced appetite by businesses and consumers would
slow overall economic activity.
Against this backdrop, Wall Street has careened wildly in recent
weeks.
Bernanke and his central bank colleagues, in a meeting on Tuesday,
acknowledged that these problems are posing increasing risks to the
economy. But they refrained from cutting interest rates and stuck to
their forecast that the economy will weather the financial storm and
grow gradually in the coming months.
One day later, Bush struck a reassuring tone about the turbulence on
Wall Street, saying he believes the markets will achieve a "soft
landing." The market ended Wednesday up by 154 points, but then went
into its nosedive on Thursday.
