Facing a major test, the Federal Reserve pumped billions of dollars into the US financial system after a global credit crunch sent Wall Street into a dive and shriveled the nest eggs of investors large and small.
Will it be enough or will Fed Chairman Ben Bernanke and his central bank colleagues have to dig deeper into their arsenal?
The Fed's action may have eased some investors' anxieties. The Dow Jones industrial average was down again Friday, but only a little -- 31 points -- by the end of a seesaw day.
The Federal Reserve has a range of tools to keep financial institutions' problems from morphing into a broader economic crisis. It can also use the power of words to try to calm investors.
So far, the Fed has chosen a little of both.
It ordered extra cash to be plowed into the system, hoping to help banks and other institutions get over the hump and carry out their business more smoothly.
The Fed also sought to send a reassuring message to Wall Street and Main Street that it is on top of an unsettling situation, pledging to provide "reserves as necessary" to help the markets safely make their way.
Bernanke and his colleagues had to walk a fine line to acknowledge a problem, discuss some relief but not say anything that might spook investors further.
"If they were to say it is a really big crisis and they are really concerned it could translate into an economic crisis, it would have the reverse effect on investors and send them into a bigger panic," said Victor Li, economics professor Villanova School of Business.
The Fed cannot ignore the market's pain. At the same time, it must be mindful of doing what is best for the economy in the long run.
The Fed, in a meeting on Tuesday, acknowledged that Wall Street turbulence, credit problems and a nationwide housing slump pose increasing threats to the economy. But it refrained from cutting rates and stuck to a forecast that the economy will weather the financial storm and grow gradually in coming months.
"It seems like Bernanke might be more willing than [former chairman] Alan Greenspan to let financial stress play out to ensure investors don't feel emboldened in the future and take on more risk. There is a sense that Bernanke buys into that argument more than Greenspan did," said Mark Zandi, chief economist at Moody's Economy.com.
"We'll see if that is true in the next week or so. If markets remain unstable, it will be a test to see how closely the Bernanke Fed sticks to the Greenspan cookbook."
To make sure there's adequate money available, the Federal Reserve pushed US$38 billion in temporary reserves into the system on Friday -- the biggest injection since the days following the Sept. 11, 2001, terror attacks. On Thursday, the Fed had put US$24 billion into the system.
Banks were also told that the Fed's discount window -- where they can turn in an emergency for short-term loans -- is available as a source of funding. After the 2001 terror attacks, the Fed used the discount window to extend billions of dollars worth of emergency loans to keep the financial system functioning.
Besides injecting cash into the financial system as it did on Thursday and Friday, the Fed could lower the discount rate on loans to banks. That would encourage increased lending to people and businesses. The Fed has done this before in times of economic or financial crisis.
The central bank's most potent weapon, though, would be to lower the federal funds rate, now at 5.25 percent. That rate is the interest banks charge each other on overnight loans.
Cutting that rate would influence other important lending rates throughout the economy. Most notably, it would led to a corresponding reduction in commercial banks' prime interest rate -- now at 8.25 percent -- for certain credit cards, home equity lines of credit and other loans.
Bernanke, an economist and former academic, took the Federal Reserve helm in February last year. He succeeded Greenspan, who in his run of more than 18 years seemed to some to have a sixth sense about Wall Street's psyche.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last