The US Federal Reserve on Tuesday pledged a further $800bn to bolster the financial system, this time focusing on markets for loans to homebuyers, consumers, students and small businesses. The planned intervention in consumer lending markets had an immediate impact on interest rates for mortgage-backed securities, which fell to their lowest levels since January after remaining stubbornly high despite Fed rate cuts. But the move also highlighted the severity of the credit crisis and raised concerns that the Fed might be taking too much risk – and printing too much money – in response. Hank Paulson, Treasury secretary, defended the move saying “we are dealing with a historic situation that happens once or twice in a 100 years.” But, the FT says, it is also a tacit admission of the failure of previous efforts to lower costs of mortgages and consumer finance. The Fed moves came as the EU prepared Wednesday to unveil its own fiscal stimulus plan.

This entry was posted by Gwen Robinson on Wednesday, November 26th, 2008 at 5:52 and is filed under Capital markets. Tagged with federal reserve. Edit this entry.