Bernanke hints rate cut as Fed announces new liquidity measures

October 8th, 2008 - 2:05 am ICT by IANS  

Washington, Oct 8 (DPA) Federal Reserve Chairman Ben Bernanke suggested another interest rate cut was on the way, while the US central bank Tuesday announced fresh moves to inject liquidity into the struggling US financial system.Bernanke said the ongoing financial turmoil meant the outlook for economic growth had “worsened” in recent weeks as the availability of credit to banks, consumers and businesses has threatened to dry up completely.

That fact meant the Fed “will need to consider whether the current stance of policy remains appropriate” - a possible nod to economists who have called for a further interest rate cut from the current 2-percent level. The Fed meets later this month.

Earlier Tuesday, in its latest move to keep credit flowing through the US economy, the US central bank created a new fund to purchase commercial paper, a type of short-term security relied on by companies and financial institutions to fund day-to-day operations.

The US central bank said the commercial paper markets had come under “considerable strain” in the last few weeks as investors have pulled out of funding even those companies with no connection to the subprime mortgage crisis.

The availability of loans to consumers and small businesses has dried up as banks and financial institutions have been forced to deal with their own capital shortfalls. Bank failures, rescues and takeovers have sent global stock markets plunging.

The Fed did not put a dollar-figure on the commercial paper it planned to buy. The Treasury was to make a deposit with the New York Federal Reserve Bank to finance the fund.

Bernanke said the Fed’s latest moves were designed to help businesses that have struggled to raise the “working capital” they need for daily operations.

The central bank has already issued hundreds of billions of dollars in loans to financial institutions in an effort to boost liquidity in the system and keep banks afloat.

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