2008 Woodie Awards
Fed prepares for another rate cut to calm economy
By: THE ASSOCIATED PRESS
Issue date: 3/18/08 Section: Nation
WASHINGTON - The Federal Reserve is primed to aggressively cut a key interest rate even lower tomorrow, racing to contain spreading financial fires that threaten an economic meltdown.
President Bush declared "we're in challenging times" and huddled yesterday with top economic officials - including Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.
On Wall Street investors were still skittish. The Dow Jones industrials, in an erratic session, closed up 21.16 points, after having plunged nearly 200 points early in the day. Other stock indexes fell.
With the quick collapse of the investment bank Bear Stearns, fears are mounting about whether other financial companies may fall. Many believe the country has already sunk into recession and all the problems - if not contained - will deepen and prolong the pain.
"The Fed is on high alert - something you don't see but once every quarter century; maybe, in this case, since the Great Depression. This is a very unusual period," said Mark Zandi, chief economist at Moody's Economy.com.
That's because the Fed is having to fight multiple battles at the same time: a housing collapse, a severe credit crunch and Wall Street turmoil that threatens the stability of the entire U.S. financial system. All those problems feed on each other, creating a vicious cycle that can be hard for the Fed and other Washington policymakers to break. The weight of those troubles is like a millstone on the ailing economy.
"Now the issue is fighting the deeper recession," said Brian Bethune, economist at Global Insight. "It has kind of moved to another level. The fires are spreading," he said.
To limit the damage, Bernanke and his colleagues may ratchet down a key interest rate, now at three percent, by as much as a full percentage point, to two percent, which would put that rate at the lowest it has been since late 2004. Because that rate affects a wide range of rates charged to millions of consumer and businesses, it is the Fed's most potent tool for reviving economic activity.
President Bush declared "we're in challenging times" and huddled yesterday with top economic officials - including Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.
On Wall Street investors were still skittish. The Dow Jones industrials, in an erratic session, closed up 21.16 points, after having plunged nearly 200 points early in the day. Other stock indexes fell.
With the quick collapse of the investment bank Bear Stearns, fears are mounting about whether other financial companies may fall. Many believe the country has already sunk into recession and all the problems - if not contained - will deepen and prolong the pain.
"The Fed is on high alert - something you don't see but once every quarter century; maybe, in this case, since the Great Depression. This is a very unusual period," said Mark Zandi, chief economist at Moody's Economy.com.
That's because the Fed is having to fight multiple battles at the same time: a housing collapse, a severe credit crunch and Wall Street turmoil that threatens the stability of the entire U.S. financial system. All those problems feed on each other, creating a vicious cycle that can be hard for the Fed and other Washington policymakers to break. The weight of those troubles is like a millstone on the ailing economy.
"Now the issue is fighting the deeper recession," said Brian Bethune, economist at Global Insight. "It has kind of moved to another level. The fires are spreading," he said.
To limit the damage, Bernanke and his colleagues may ratchet down a key interest rate, now at three percent, by as much as a full percentage point, to two percent, which would put that rate at the lowest it has been since late 2004. Because that rate affects a wide range of rates charged to millions of consumer and businesses, it is the Fed's most potent tool for reviving economic activity.
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