Fed
The Federal Reserve’s sharp cuts in borrowing costs since last summer will boost economic activity and dispel dangers posed by recent financial turmoil, Federal Reserve Governor Randall Kroszner said on Friday.
“These actions, together with steps we have taken to foster market liquidity, will help to promote growth over time and to mitigate the risks to economic activity,” Kroszner said in a speech to the Inter-American Development Bank.
The Fed has slashed benchmark rates to 2.25 percent from 5.25 percent since September as a crisis from defaults in risky subprime mortgages has escalated and pushed the economy to the brink of recession. Data released earlier on Friday showed the U.S. economy shed jobs in March for a third straight month, the first decline that long since a five-month string in 2003.
Kroszner said the Fed’s emergency steps to provide liquidity — not just to banks but also to large Wall Street investment banks and broker-dealers not normally able to tap the U.S 24 hour payday advances. central bank’s emergency lending — seemed to be soothing rattled financial markets.
“Funding pressures on some financial institutions appear to have eased somewhat as liquidity seems to have improved in several financial markets,” he said.
Kroszner’s comments echoed remarks by Fed Chairman Ben Bernanke to Congress this week. That testimony, made before the gloomy jobs report was released, was seen as suggesting the Fed may be nearing the end of its interest rate-cutting campaign.
However, in the face of evidence the job market is unraveling, financial markets boosted perceived chances of a half-percentage-point rate cut at the Fed’s April 29-30 meeting to 40 percent after the employment data. A quarter-point reduction is fully priced in to financial markets.
Kroszner said U.S. banks will continue to face challenges, but remain in sound condition overall.