The Federal Reserve is digging deep into its toolbox to avert a recession and unfreeze the credit markets. On the recession front, the Fed...
The Federal Reserve is digging deep into its toolbox to avert a recession and unfreeze the credit markets.
On the recession front, the Fed has turned to a familiar device, cutting its target for the benchmark federal-funds rate, with the latest trim Tuesday. On the credit front, it’s creating new tools to boost liquidity as banks are refusing to touch certain assets and hoarding cash.
Fed Chairman Ben Bernanke has received criticism for “bailing out” risk takers. But Richard Sylla, professor of economics and financial history at New York University, says the efforts to shore up Wall Street firms, not just commercial banks, have been bold.
Investment firms are cogs in the financial system, and one’s failure could lead to a chain reaction.
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“We suspect that before throwing the kitchen sink at the problem, the Fed will wait and see if the three rooms of furniture it has already hurled will have the desired effects,” says Friedman Billings Ramsey economist Steve East.