Washington - Federal Reserve Chairman Ben Bernanke suggested
another interest rate cut was on the way, while the US central bank
Tuesday announced fresh moves to unblock credit markets and prevent
the US economy from crashing to a halt.
Bernanke said the ongoing financial turmoil meant the outlook for
economic growth had 'worsened' in recent weeks, as the availability
of credit to banks, consumers and businesses has threatened to dry up
completely.
That fact meant the Fed 'will need to consider whether the current
stance of policy remains appropriate' - a possible nod to economists
who have called for a further interest rate cut from the current 2-
per-cent level. The Fed meets later this month.
Earlier Tuesday, in its latest move to keep credit flowing through
the US economy, the central bank created a new fund to purchase
commercial paper, a type of short-term security relied on by
companies and financial institutions to fund day-to-day operations.
President George W Bush on Tuesday discussed additional
international measures by telephone with European leaders, including
British Prime Minister Gordon Brown, French President Nicolas Sarkozy
and Italian Prime Minister Silvio Berlusconi, the White House said.
Finance ministers from the Group of Seven (G7) industrial nations
will meet Friday in Washington.
In comments to small-business owners in Virginia, Bush offered
assurances that the Fed's moves, as well as a 700-billion-dollar
rescue package passed on Friday, would gradually help free up access
to credit.
'No question the times are tough, but no question America will
emerge,' Bush said, but warned people to be patient.
'It took awhile to get (credit markets) frozen, it's gonna take
awhile to get it unstuck,' he said.
The availability of loans to consumers and small businesses has
tightened as banks and financial institutions have been forced to
deal with their own capital shortfalls. Bank failures, rescues and
takeovers have sent global stock markets plunging.
The International Monetary Fund, in an annual financial report
Tuesday, warned that financial institutions would suffer losses of
1.4 trillion dollars before the end of the crisis.
The US central bank said commercial paper markets had come under
'considerable strain' in the last few weeks as investors have pulled
out of funding even those companies with no connection to the
subprime mortgage crisis.
The Fed did not put a dollar-figure on the commercial paper it
planned to buy. The Treasury was to make a deposit with the New York
Federal Reserve Bank to finance the fund.
Bernanke said the Fed's latest moves were designed to help
businesses that have struggled to raise the 'working capital' they
need for daily operations.
The central bank has already issued hundreds of billions of
dollars in loans to financial institutions in an effort to boost
liquidity in the system and keep banks afloat.
USA
Your Talkback on this Story