More Help Hinted Amid Yesterday’s Fed Cut Rate
Yesterday the Federal Reserve cut its short-term interest rate target 0.75 percentage point to 2.25%, and hinted at more cuts to come. The cut was less than financial markets wanted, but in a sign the Fed's prior efforts to boost lending through unconventional means may be getting some traction, stocks soared, buoyed by earnings reports from two big investment banks.
The less-than-expected move was also a signal that because of the Fed's concerns about inflation, it expects its other planned initiatives to bear more of the burden of stimulating growth.
The Fed has increasingly come to the view that lower rates alone won't restore order to the financial markets and prevent a severe recession. It has rolled out ever more creative and aggressive attempts to infuse cash into market corners where it normally doesn't operate, culminating in Sunday's decision to lend to investment banks from its "discount window," a privilege previously reserved for commercial banks. Chairman Ben Bernanke also has publicly backed action to use public money to stem a tide of mortgage defaults and foreclosures.
The Fed's actions are among several aggressive steps throughout the federal government that are coming to a head this week and could prove critical in combating the crisis. Today the regulator of Fannie Mae and Freddie Mac, which provide the bulk of funding for home mortgages, is to announce an easing of their capital requirements and the companies are to pledge to raise more capital, people familiar with the matter said. Those steps should enable them to back more mortgages.
Source: Source: Wall Street Journal | Published on March 19, 2008
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