Ben Bernanke, Federal Reserve chairman, on Tuesday opened the door to possible interest rate cuts after the central bank announced it would buy short-term debt from banks and corporations in an unprecedented attempt to unfreeze money markets. Bernanke indicated that lower interest rates could be necessary, saying the Fed would “need to consider whether the current stance of policy remains appropriate”. He stopped short of explicitly signalling a cut below the present level of 2%. His remarks came shortly after the Fed unveiled an aggressive move to bolster the market for commercial paper, a vital source of corporate short-term funding which has been shrinking rapidly in recent weeks. The Fed’s plan, which involves setting up a special purpose vehicle to buy potentially unlimited amounts of three-month debt from banks and non-financial companies, would expand its role as lender of last resort. Fed officials said the extraordinary action was needed because companies were struggling to issue commercial paper for any period longer than overnight. The move comes amid growing recognition that the Bush administration’s $700bn bail-out plan, enacted last week, would not be sufficient to resolve the spreading financial crisis.

This entry was posted by Gwen Robinson on Wednesday, October 8th, 2008 at 5:45 and is filed under Capital markets. Tagged with ben bernanke, federal reserve. Edit this entry.