The US Federal Reserve is expected to aggressively lower interest rates in its intensified battle against the US credit crisis and spreading economic weakness. The question is whether all of the effort will turn the tide.
Fed Chairman Ben Bernanke and his colleagues have already been working overtime, employing a variety of novel approaches to keep the economy out of a recession or at least moderate the impact of any downturn.
More relief was expected yesterday when the central bank was expected to cut a key interest rate by between one-half and a full percentage point.
"There is no reason for the Fed not to be aggressive," said Mark Zandi, chief economist at Moody's Economy.com. "The economy is in a recession, the financial system is in disarray and inflation is low."
The federal funds rate, the interest that banks charge each other on overnight loans, currently stands at 3 percent, down from 4.25 percent at the beginning of this year. That was before global market turmoil in January prompted an emergency three-quarter-point cut on Jan. 22 and a half-point move eight days later, the biggest reductions in a single month in more than a quarter-century.
Many economists believe that the Fed was to deliver another three-quarter-point cut or perhaps even a full one-point reduction at yesterday's meetings because Fed officials will not want to disappoint fragile financial markets, which have been on a rollercoaster ride in recent days as they have watched Bear Stearns Cos, the fifth-largest US investment house, suddenly be brought down by the equivalent of a run on the bank.
JPMorgan Chase & Co stepped in to announce it was purchasing Bear Stearns at a fire-sale price on Sunday in a deal helped along with a pledge that the Fed would supply a US$30 billion line of credit to back up Bear Stearns' assets.
That offer over the weekend was the latest move by a central bank that has been pulling out all of the stops, including using procedures from the Depression era of the 1930s, to pump cash into the financial system. Analysts, who faulted Bernanke for being slow to recognize the gravity of the situation last year, now give him high praise for bringing all the Fed's powers to bear.
"The Fed is doing what it can to come to rescue an economy that faces potentially a huge meltdown in financial markets," said Lyle Gramley, a former Fed governor and now an analyst with Stanford Financial Group. "The Fed is acting as a lender of last resort and being very aggressive and innovative."
In addition to providing support for the Bear Stearns sale, the Fed also announced on Sunday one of the broadest expansions of its lending authority since the 1930s, saying it would allow securities dealers for at least the next six months to borrow directly from the Fed. That privilege, until now, had been confined to commercial banks.
At the same time, the Fed announced it was cutting the interest rate on those direct loans from the Fed, through a facility known as the Fed's discount window, by a quarter-point to 3.25 percent.
In other moves, the Fed last week announced that it would lend up to US$200 billion of Treasury securities that it owns to investment banks starting next Thursday for a period of up to 28 days in return for a like amount of the investment banks' shunned mortgage-backed securities. The Fed also announced recently that it was boosting the size of special loans it has been making since December to commercial banks.
The scale of these actions underscored the threat facing the economy from a severe credit squeeze that began with a wave of defaults on subprime mortgages last year but has now spread to other parts of the credit markets, triggering multibillion-dollar losses by some of the US' largest financial institutions.
Analysts said it will take some time to determine whether the Fed has done enough to stem the wave of panic among investors.
The rapid decline of Bear Stearns stock -- which had a market value of about US$20 billion in January, only to collapse to a sales price of US$2 per share, or about US$236 million this past weekend -- has given investors the chills.
"The Fed is trying very hard to figure out how to calm the markets down, but so far it hasn't been very successful," said David Wyss, chief economist at Standard & Poor's in New York. "Markets are worried that there might be another Bear Stearns out there."
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source