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Fed, in emergency move, will lend to companies

(Agencies)
Updated: 2008-10-08 10:15

WASHINGTON -- Frantically trying to stop the bleeding on Wall Street, the Federal Reserve took a first-time step Tuesday to get cash directly to businesses and hinted that interest rates could come down soon. Stocks continued their free fall anyway and hit new five-year lows.

Federal Reserve Chairman Ben Bernanke, speaks to the National Association for Business Economics, Tuesday, Oct. 7, 2008, in Washington. Bernanke warned that the financial crisis has not only darkened the country's current economic performance but also could prolong the pain. 'The outlook for economic growth has worsened,' Bernanke said. [Agencies]

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The US central bank invoked emergency powers to lend money to companies outside the financial sector and buy up mounds of commercial paper, the short-term debt that firms use to pay for everyday expenses like salaries and supplies.

The Fed, which has lent money only to banks before, made the move as the gravest financial crisis in decades wore on and angst spread around the world.

In a speech to the National Association for Business Economics, Fed Chairman Ben Bernanke delivered a strong signal interest rates might need to be cut. He also warned that the United States could be stuck in economic doldrums for some time.

"The outlook for economic growth has worsened," Bernanke said. "The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance."

The gloomy assessment appeared to open the door wider to an interest rate cut on or before the Fed convenes again October 28. The Fed's key interest rate now stands at 2 percent.

Wall Street turned its back. The Dow Jones industrials lost 508 points, more than 5 percent, to close at 9,447, the lowest since September 30, 2003. The Standard & Poor's 500, a broader stock index, closed below 1,000 for the first time since that day.

President George W. Bush again sought to strike a reassuring tone and said the nation would make it through an economy blighted by job losses, record foreclosures and shriveled retirement savings. Congress' top budget analyst estimated Tuesday that Americans' retirement plans have lost as much as $2 trillion in 15 months, roughly 20 percent of the previous total.

"Have faith. This economy is going to recover over time," the president said in a speech in Virginia. "I wish I could snap my fingers and make what happened stop. But that's not the way it works."

Bush reached out to European leaders Tuesday to urge coordination on efforts to solve the crisis. The White House said Bush was open to the idea of a summit.

The contagion has spread overseas. Britain's chief financial regulator was readying a statement to make before markets opened Wednesday, and BBC reported that the British government was ready to announce a rescue package for the banking system there.

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