Well yen weak, euro strong, market probably will be up again....Oh, CNBC is not worth watching anymore. You know FOX is coming out with their own channel? Can only be better. And the FOX anchors(ladies), judging from their cable news, should be something to look at....I'd watch bloomberg if I could.
Seeing alot of funny numbers like 2000, 2001, and 1987 popping up along with what's going on in the financial markets today....hmm....
---------------------------------------------------------------------------------------------------------
Commercial Paper Has Biggest Weekly Drop Since 2000 (Update3)
By Darrell Hassler
Aug. 23 (Bloomberg) -- Outstanding U.S. commercial paper fell 4.2 percent, the biggest weekly drop in at least seven years, as investors fled asset-backed debt and opted for the safety of Treasuries.
Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally adjusted $2.04 trillion in the week ended yesterday, according to the Federal Reserve. Commercial paper outstanding has fallen by $181.3 billion in two weeks.
The retreat may indicate that the Fed's decision to lower the discount rate last week failed to instill enough calm to draw back investors. Commercial paper backed by assets led the fall as buyers fled debt linked to subprime mortgages. Outstanding paper may slump by a total $300 billion, representing the entire amount of such debt backed by home loans, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
``The commercial paper market, in terms of the asset-backed commercial paper market, is basically history,'' Bill Gross, manager of the world's biggest bond fund at Newport Beach, California-based Pacific Investment Management Co., said in an interview today.
The decline in outstanding commercial paper was driven by a 6.8 percent fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages.
Banks worldwide have $891 billion at risk because of credit agreements on asset-backed commercial paper programs, Fitch Ratings said today.
``There is no doubt that banks have been forced to assume additional liabilities,'' Gross said.
Rates Lowered
The most recent decline is the biggest by percentage since at least November 2000, according to data compiled by Bloomberg.
The Fed lowered the interest rate it charges to lend to banks to encourage buyers of commercial paper after the market seized up last week for Countrywide Financial Corp. and other mortgage lenders. Countrywide, based in Calabasas, California, borrowed its entire $11.5 billion in available bank credit lines in order to fund its operations.
Countrywide said yesterday that Bank of America Corp. agreed to provide $2 billion of new capital through the purchase of preferred securities.
Investors shunned commercial paper in favor of government debt, sending Treasury bill yields down earlier this week by the most since the stock market crash of 1987.
Cash in the System
``There is a significant amount of cash in the system, it's just not getting to the parts of the market that need it,'' Conrad DeQuadros, a senior economist at Bear Stearns Cos., said in an interview today in New York.
The average yield on 30-day asset-backed paper rated A1, the second-highest short-term credit rating by Standard & Poor's, rose 5 basis points, or 0.05 percentage point, to 6.1 percent today and has risen 35 basis points in the past week.
``The shrinkage of the commercial paper market will force companies to obtain money elsewhere,'' Crescenzi, who is based in New York, said in e-mailed comments today. ``Some will be unable to obtain funding and will shut or scale back their operations.''
More than half of the $1.1 trillion in outstanding asset- backed paper comes due in the next 90 days, according to the Federal Reserve. Unless they find new buyers, hundreds of hedge funds and home-loan companies will be forced to sell $75 billion of debt, according to Zurich-based UBS AG, Europe's largest bank.
Investor Losses
Those sales would drive down prices in a market where investors have already lost $57 billion, based on Merrill Lynch & Co.'s broadest index of floating-rate securities backed by home- equity loans. That may hurt the 38.4 million individual and institutional investors in money market funds, the biggest owners of commercial paper. Top-rated commercial paper is one of the world's safest assets.
In Europe, the asset-backed commercial paper market is almost closed, Reynold Leegerstee, team managing director for Moody's Investors Service, said on a conference call today.
Deutsche Bank AG and Commerzbank AG, the nation's two biggest lenders, as well as DZ Bank Group, Germany's biggest cooperative bank, and HVB Group, part of Unicredit SpA, may record reduced profit and revenue because of the U.S. subprime mortgage slump, Moody's said.
The possibility of any of the large European banks defaulting on commercial paper debt is remote, Moody's Vice Chairman Chris Mahoney said.
---------------------------------------------------------------------------------------------------------
Commercial Paper Has Biggest Weekly Drop Since 2000 (Update3)
By Darrell Hassler
Aug. 23 (Bloomberg) -- Outstanding U.S. commercial paper fell 4.2 percent, the biggest weekly drop in at least seven years, as investors fled asset-backed debt and opted for the safety of Treasuries.
Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally adjusted $2.04 trillion in the week ended yesterday, according to the Federal Reserve. Commercial paper outstanding has fallen by $181.3 billion in two weeks.
The retreat may indicate that the Fed's decision to lower the discount rate last week failed to instill enough calm to draw back investors. Commercial paper backed by assets led the fall as buyers fled debt linked to subprime mortgages. Outstanding paper may slump by a total $300 billion, representing the entire amount of such debt backed by home loans, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
``The commercial paper market, in terms of the asset-backed commercial paper market, is basically history,'' Bill Gross, manager of the world's biggest bond fund at Newport Beach, California-based Pacific Investment Management Co., said in an interview today.
The decline in outstanding commercial paper was driven by a 6.8 percent fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages.
Banks worldwide have $891 billion at risk because of credit agreements on asset-backed commercial paper programs, Fitch Ratings said today.
``There is no doubt that banks have been forced to assume additional liabilities,'' Gross said.
Rates Lowered
The most recent decline is the biggest by percentage since at least November 2000, according to data compiled by Bloomberg.
The Fed lowered the interest rate it charges to lend to banks to encourage buyers of commercial paper after the market seized up last week for Countrywide Financial Corp. and other mortgage lenders. Countrywide, based in Calabasas, California, borrowed its entire $11.5 billion in available bank credit lines in order to fund its operations.
Countrywide said yesterday that Bank of America Corp. agreed to provide $2 billion of new capital through the purchase of preferred securities.
Investors shunned commercial paper in favor of government debt, sending Treasury bill yields down earlier this week by the most since the stock market crash of 1987.
Cash in the System
``There is a significant amount of cash in the system, it's just not getting to the parts of the market that need it,'' Conrad DeQuadros, a senior economist at Bear Stearns Cos., said in an interview today in New York.
The average yield on 30-day asset-backed paper rated A1, the second-highest short-term credit rating by Standard & Poor's, rose 5 basis points, or 0.05 percentage point, to 6.1 percent today and has risen 35 basis points in the past week.
``The shrinkage of the commercial paper market will force companies to obtain money elsewhere,'' Crescenzi, who is based in New York, said in e-mailed comments today. ``Some will be unable to obtain funding and will shut or scale back their operations.''
More than half of the $1.1 trillion in outstanding asset- backed paper comes due in the next 90 days, according to the Federal Reserve. Unless they find new buyers, hundreds of hedge funds and home-loan companies will be forced to sell $75 billion of debt, according to Zurich-based UBS AG, Europe's largest bank.
Investor Losses
Those sales would drive down prices in a market where investors have already lost $57 billion, based on Merrill Lynch & Co.'s broadest index of floating-rate securities backed by home- equity loans. That may hurt the 38.4 million individual and institutional investors in money market funds, the biggest owners of commercial paper. Top-rated commercial paper is one of the world's safest assets.
In Europe, the asset-backed commercial paper market is almost closed, Reynold Leegerstee, team managing director for Moody's Investors Service, said on a conference call today.
Deutsche Bank AG and Commerzbank AG, the nation's two biggest lenders, as well as DZ Bank Group, Germany's biggest cooperative bank, and HVB Group, part of Unicredit SpA, may record reduced profit and revenue because of the U.S. subprime mortgage slump, Moody's said.
The possibility of any of the large European banks defaulting on commercial paper debt is remote, Moody's Vice Chairman Chris Mahoney said.
NABE: Bad Credit Biggest Risk to Economy
Monday August 27, 7:54 am ET
By Dan Seymour, AP Business Writer
Bad Credit Tops Terrorism As Biggest Immediate Risk to Economy, Group Reports
NEW YORK (AP) -- Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported Monday.
Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.
NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.
Only 20 percent of members cited defense and terrorism as their biggest immediate worry, down from 35 percent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.
"Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the U.S. economy," said Carl Tannenbaum, president of NABE and the chief economist at LaSalle Bank/ABN Amro.
The market turmoil began earlier this year, when mortgage lenders like New Century Financial Corp. and H&R Block Inc.'s Option One Mortgage Corp. unit reported their clients were missing payments on their home loans more frequently.
This led the Wall Street banks that finance the mortgage market to ultimately pull much of their money out. With cash draining rapidly from the industry, more than 50 lenders have gone bankrupt and a number of investment funds have gone under.
Victims of this flare-up include two of the 10 biggest mortgage lenders in the country and two hedge funds managed by Bear Stearns Cos.
Loan brokers say it has become more difficult for some people to line up mortgages. Subprime loans, or loans to people with spotty credit histories, have all but disappeared as lenders scale back or shut down completely.
The shakeout in the subprime mortgage market forced investors around the world to reassess how much risk they were willing to stomach. This led to an exodus of cash from investments like securities backed by home loans, short-term corporate bonds and stocks whose values were inflated because they were perceived as takeover targets.
In the past five weeks, the stock market has lost 5 percent. The dollar fell to an all-time low versus the euro. A number of companies have had to cancel bond sales because of an absence of buyers.
And, the Federal Reserve has lent billions of dollars to banks from its "discount window," normally associated with bailouts for struggling financial institutions. The Fed this month issued a statement that the risks to the economy have risen considerably and traders ramped up their expectations the Fed would cut targets for interest rates this year.
The tumult in the financial markets has led businesses to revisit their interpretation of the housing boom earlier this decade and the easy credit that fueled it, NABE said. The proportion of surveyed members who call it a "serious national bubble" more than doubled from two years ago to 29 percent, the group said.
NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years.
The greatest long-term risk facing the economy is still health care costs and the medical needs of an aging population, NABE said.
Monday August 27, 7:54 am ET
By Dan Seymour, AP Business Writer
Bad Credit Tops Terrorism As Biggest Immediate Risk to Economy, Group Reports
NEW YORK (AP) -- Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported Monday.
Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics.
NABE, a Washington-based association, said 32 percent of its surveyed members cited loan defaults and excessive debt as their biggest near-term concern.
Only 20 percent of members cited defense and terrorism as their biggest immediate worry, down from 35 percent when the survey was last conducted in March. Credit risk also topped gas prices, inflation and government spending.
"Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the U.S. economy," said Carl Tannenbaum, president of NABE and the chief economist at LaSalle Bank/ABN Amro.
The market turmoil began earlier this year, when mortgage lenders like New Century Financial Corp. and H&R Block Inc.'s Option One Mortgage Corp. unit reported their clients were missing payments on their home loans more frequently.
This led the Wall Street banks that finance the mortgage market to ultimately pull much of their money out. With cash draining rapidly from the industry, more than 50 lenders have gone bankrupt and a number of investment funds have gone under.
Victims of this flare-up include two of the 10 biggest mortgage lenders in the country and two hedge funds managed by Bear Stearns Cos.
Loan brokers say it has become more difficult for some people to line up mortgages. Subprime loans, or loans to people with spotty credit histories, have all but disappeared as lenders scale back or shut down completely.
The shakeout in the subprime mortgage market forced investors around the world to reassess how much risk they were willing to stomach. This led to an exodus of cash from investments like securities backed by home loans, short-term corporate bonds and stocks whose values were inflated because they were perceived as takeover targets.
In the past five weeks, the stock market has lost 5 percent. The dollar fell to an all-time low versus the euro. A number of companies have had to cancel bond sales because of an absence of buyers.
And, the Federal Reserve has lent billions of dollars to banks from its "discount window," normally associated with bailouts for struggling financial institutions. The Fed this month issued a statement that the risks to the economy have risen considerably and traders ramped up their expectations the Fed would cut targets for interest rates this year.
The tumult in the financial markets has led businesses to revisit their interpretation of the housing boom earlier this decade and the easy credit that fueled it, NABE said. The proportion of surveyed members who call it a "serious national bubble" more than doubled from two years ago to 29 percent, the group said.
NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years.
The greatest long-term risk facing the economy is still health care costs and the medical needs of an aging population, NABE said.
Wow 3.2% drop in q2 that's a huge move in home prices to downside markets not happy
---------------------------------------------------------------------
Home Prices: Steepest Drop in 20 Years
Tuesday August 28, 9:58 am ET
By Vinnee Tong, AP Business Writer <table border="0" cellpadding="0" cellspacing="0" height="4"><tbody><tr><td height="4">
</td></tr></tbody></table>S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987 NEW YORK (AP) -- U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.
The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."
The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.
The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier .
A separate index that covers 20 U.S. cities fell 3.5 percent in June from a year earlier. A 10-city index fell 4.1 percent from a year earlier.
Housing is among the economic indicators closely watched by Federal Reserve policymakers.
After five years of rapidly rising home prices, the market stalled last year, with prices holding steady or falling as sales slowed. Since then, lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates facing higher payments they can't meet.
Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.
The Fed has taken a number of steps aimed at stabilizing the situation, and market watchers look further for a possible cut in the federal funds rate, which is the rate commercial banks charge each other for short-term loans. That rate has been kept steady at 5.25 percent for more than a year.
The Fed has its next regularly scheduled meeting on Sept. 18.
Fifteen of the cities surveyed for S&P's 20-city index showed a year-over-year decline in prices in June.
Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend that started at the beginning of the year. In April 2006, Boston was the first metropolitan area to show a year-over-year decline, so any turnaround there could be an early sign of recovery.
S&P said it needed more data to determine whether Boston would be the first area to improve.
Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year. Other cities with falling prices included Tampa, Fla., San Diego and Washington, D.C., which all recorded drops of at least 7 percent.
Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period. Seattle prices rose 8 percent in June while Charlotte saw a 6.8 percent increase.
In Monday's report, the National Association of Realtors said sales of existing homes dipped by 0.2 percent in July from June to a seasonally adjusted annual rate of 5.75 million units.
The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.
---------------------------------------------------------------------
Home Prices: Steepest Drop in 20 Years
Tuesday August 28, 9:58 am ET
By Vinnee Tong, AP Business Writer <table border="0" cellpadding="0" cellspacing="0" height="4"><tbody><tr><td height="4">
</td></tr></tbody></table>S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987 NEW YORK (AP) -- U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.
The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."
The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.
The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier .
A separate index that covers 20 U.S. cities fell 3.5 percent in June from a year earlier. A 10-city index fell 4.1 percent from a year earlier.
Housing is among the economic indicators closely watched by Federal Reserve policymakers.
After five years of rapidly rising home prices, the market stalled last year, with prices holding steady or falling as sales slowed. Since then, lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates facing higher payments they can't meet.
Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.
The Fed has taken a number of steps aimed at stabilizing the situation, and market watchers look further for a possible cut in the federal funds rate, which is the rate commercial banks charge each other for short-term loans. That rate has been kept steady at 5.25 percent for more than a year.
The Fed has its next regularly scheduled meeting on Sept. 18.
Fifteen of the cities surveyed for S&P's 20-city index showed a year-over-year decline in prices in June.
Prices in Boston dropped in June at a slower rate than they did in May, continuing a trend that started at the beginning of the year. In April 2006, Boston was the first metropolitan area to show a year-over-year decline, so any turnaround there could be an early sign of recovery.
S&P said it needed more data to determine whether Boston would be the first area to improve.
Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year. Other cities with falling prices included Tampa, Fla., San Diego and Washington, D.C., which all recorded drops of at least 7 percent.
Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period. Seattle prices rose 8 percent in June while Charlotte saw a 6.8 percent increase.
In Monday's report, the National Association of Realtors said sales of existing homes dipped by 0.2 percent in July from June to a seasonally adjusted annual rate of 5.75 million units.
The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.
Market didn't like the fed minutes that came out this afternoon
---------------------------------------------------------------------
Fed Hoped Market Would Right Itself
Tuesday August 28, 2:57 pm ET
By Jeannine Aversa, AP Economics Writer
Fed Saw Danger of Credit Crunch, Hoped Market Would Return to Normal Without Intervention
WASHINGTON (AP) -- Federal Reserve policymakers meeting in early August acknowledged that they might have to take action to ease a growing credit crunch, even as they held out hope for "a return to more normal market conditions" without any intervention.
A cut in one interest rate came 10 days later, and analysts are expecting a broader rate cut when Chairman Ben Bernanke and his Fed colleagues meet in September.
The Fed, however, didn't feel an immediate need to step in at its Aug. 7 meeting. Instead, the Fed left a key interest rate at 5.25 percent, where it has stood for more than a year. Policymakers left rates alone even as they acknowledged that the worsening housing slump, credit problems and turbulence on Wall Street had increased risks to the economy.
Bernanke and his central bank colleagues "expected a return to more normal market conditions," but they recognized that might not be the case, according to minutes of the closed-door meeting released on Tuesday.
"A further deterioration in financial conditions could not be ruled out, and to the extent such a development could have an adverse effect on growth prospects, might require a policy response," the minutes stated. The minutes didn't say what that response might entail.
"Policymakers would need to watch the situation carefully," the minutes stated.
They did. Ten days later -- on Aug. 17 -- the Federal Reserve took the unusual step of slicing by a half percentage point the interest rate it charges banks for loans to 5.75 percent. That narrowly tailored move was aimed at propping up sagging financial markets. The Fed also has pumped billions of dollars into the U.S. financial system to help banks and other institutions get over any cash-flow problems and more smoothly carry out their businesses.
Economists and investors believe the odds are rising that the Fed will move to lower its key interest rate now at 5.25 percent by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. This rate, called the federal funds rate, is the interest banks charge each other on overnight loans and is the Fed main tool for influencing overall economic activity. A reduction to the funds rate would mean lower interest rates for millions of consumers and businesses.
On Wall Street, stocks sank further as the Fed minutes failed to soothe investors, who were hoping for a stronger sign about a cut to the federal funds rate. The Dow Jones industrials were down around 178 points in afternoon trading.
Fears that the painful housing slump and credit crunch could hurt the economy have gripped Wall Street investors in recent weeks, causing stocks to swing wildly.
Credit is the economy's life blood. If it becomes too hard to get, spending and investment by people and businesses can stall, short-circuiting economic growth.
Fed policymakers at the Aug. 7 meeting were hopeful that the economy would be able to weather the financial storm. They predicted the economy would grow modestly in coming quarters. However, they recognized that problems in housing, with bad mortgages and the fallout on Wall Street were raising increasing risks to the economy.
"Several participants noted the risks that house prices could decline significantly and that credit standards for home equity loans could be tightened substantially as factors that could weigh on consumer spending," the minutes said.
On the business side, "participants recognized that conditions in corporate credit markets could change rapidly, and that adverse effects on business spending were possible," according to the minutes.
A lessened appetite by people and businesses to spend and invest would slow overall economic activity.
The economy had rebounded in the spring, although the sour housing market was expected to be a damper on economic activity. After the credit crunch took a turn for the worse in August, economists said they expected housing's problems to drag on into next year.
Fed policymakers at the Aug 7 meeting said "the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year."
At that meeting, the Fed determined that the "downside risks to growth had increased somewhat." Even so, the Fed continued to identify inflation as the biggest risk for the economy.
By Aug. 17 as the credit crunch spread and financial markets grew more turbulent, the Fed found the "downside risks to growth have increased appreciably," a grimmer assessment than it had offered earlier in the month. Fed policymakers, in their new assessment, did not mention the threat of inflation.
---------------------------------------------------------------------
Fed Hoped Market Would Right Itself
Tuesday August 28, 2:57 pm ET
By Jeannine Aversa, AP Economics Writer
Fed Saw Danger of Credit Crunch, Hoped Market Would Return to Normal Without Intervention
WASHINGTON (AP) -- Federal Reserve policymakers meeting in early August acknowledged that they might have to take action to ease a growing credit crunch, even as they held out hope for "a return to more normal market conditions" without any intervention.
A cut in one interest rate came 10 days later, and analysts are expecting a broader rate cut when Chairman Ben Bernanke and his Fed colleagues meet in September.
The Fed, however, didn't feel an immediate need to step in at its Aug. 7 meeting. Instead, the Fed left a key interest rate at 5.25 percent, where it has stood for more than a year. Policymakers left rates alone even as they acknowledged that the worsening housing slump, credit problems and turbulence on Wall Street had increased risks to the economy.
Bernanke and his central bank colleagues "expected a return to more normal market conditions," but they recognized that might not be the case, according to minutes of the closed-door meeting released on Tuesday.
"A further deterioration in financial conditions could not be ruled out, and to the extent such a development could have an adverse effect on growth prospects, might require a policy response," the minutes stated. The minutes didn't say what that response might entail.
"Policymakers would need to watch the situation carefully," the minutes stated.
They did. Ten days later -- on Aug. 17 -- the Federal Reserve took the unusual step of slicing by a half percentage point the interest rate it charges banks for loans to 5.75 percent. That narrowly tailored move was aimed at propping up sagging financial markets. The Fed also has pumped billions of dollars into the U.S. financial system to help banks and other institutions get over any cash-flow problems and more smoothly carry out their businesses.
Economists and investors believe the odds are rising that the Fed will move to lower its key interest rate now at 5.25 percent by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. This rate, called the federal funds rate, is the interest banks charge each other on overnight loans and is the Fed main tool for influencing overall economic activity. A reduction to the funds rate would mean lower interest rates for millions of consumers and businesses.
On Wall Street, stocks sank further as the Fed minutes failed to soothe investors, who were hoping for a stronger sign about a cut to the federal funds rate. The Dow Jones industrials were down around 178 points in afternoon trading.
Fears that the painful housing slump and credit crunch could hurt the economy have gripped Wall Street investors in recent weeks, causing stocks to swing wildly.
Credit is the economy's life blood. If it becomes too hard to get, spending and investment by people and businesses can stall, short-circuiting economic growth.
Fed policymakers at the Aug. 7 meeting were hopeful that the economy would be able to weather the financial storm. They predicted the economy would grow modestly in coming quarters. However, they recognized that problems in housing, with bad mortgages and the fallout on Wall Street were raising increasing risks to the economy.
"Several participants noted the risks that house prices could decline significantly and that credit standards for home equity loans could be tightened substantially as factors that could weigh on consumer spending," the minutes said.
On the business side, "participants recognized that conditions in corporate credit markets could change rapidly, and that adverse effects on business spending were possible," according to the minutes.
A lessened appetite by people and businesses to spend and invest would slow overall economic activity.
The economy had rebounded in the spring, although the sour housing market was expected to be a damper on economic activity. After the credit crunch took a turn for the worse in August, economists said they expected housing's problems to drag on into next year.
Fed policymakers at the Aug 7 meeting said "the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year."
At that meeting, the Fed determined that the "downside risks to growth had increased somewhat." Even so, the Fed continued to identify inflation as the biggest risk for the economy.
By Aug. 17 as the credit crunch spread and financial markets grew more turbulent, the Fed found the "downside risks to growth have increased appreciably," a grimmer assessment than it had offered earlier in the month. Fed policymakers, in their new assessment, did not mention the threat of inflation.
