Fed bail-out move halts market slide
Ben Bernanke says Fed may continue emergency lending scheme into next year
Federal Reserve chief Ben Bernanke’s announcement last night that he is considering extending its emergency cash lending system for investment banks into next year rescued plunging markets in London and the US.
But economists warned that the move signalled that the fall out from the credit crunch was set to continue.
The speech bolstered markets on both sides of the Atlantic, with US equities and the dollar rising helping the FTSE 100 index to close above the 5,384 point level, which would have marked its fall into official bear market territory.
Speaking in Virginia, Bernanke said: “We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end.”
Paul Ashworth, economist at research house Capital Economics, said: “It’s a sensible thing to do with the credit crunch ongoing you wouldn’t pull the rug on the investment banks. But the US economy now looks pretty bleak and I expect it to slide into a deeper recession in the second half of this year.”
The Fed originally granted investment banks access to emergency cash for at least six months in an effort to stabilise the US financial system in the wake of its emergency fire sale of Bear Stearns.
Bernanke is currently reviewing what changes need to be made to financial regulation in light of the current turmoil.