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Bernanke Hints At Rate Cuts

MELISSA BLOCK, host:

From NPR News, this is All Things Considered. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. For the 50th day in a row, the stock market tumbled. Today, the Dow lost 508 points after losing nearly 400 yesterday. All the major stock indexes were down more than five percent.

BLOCK: The markets fell despite reassurances from President Bush and Fed Chairman Ben Bernanke. Today, Bernanke said the Fed would begin providing short-term loans to businesses outside the banking sector, and he hinted it may be time for another cut in interest rates, as NPR's Jim Zarroli reports.

JIM ZARROLI: There was no sugarcoating it. Bernanke told a conference of business economists that the U.S. economy is under significant threat and won't get better any time soon.

Chairman BEN BERNANKE (Federal Reserve): All told, economic activity is likely to be subdued during the remainder of this year and into next year. The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risk to growth.

ZARROLI: The problem, Bernanke said, is a very tight credit market. Consumer borrowing fell for the first time in a decade in August. Even households with good credit are having trouble getting loans. And businesses have it bad, too. Bernanke pointed to the all important commercial paper market. That's where businesses go to get short term loans when they need money for day to day operations. Lately, no one is willing to lend.

Chairman BERNANKE: Disruptions in the commercial paper market and the tightening of bank lending standards have made it more difficult for businesses to obtain the working capital they need to meet everyday operating expenses such as payroll and inventories.

ZARROLI: To address the problem, Bernanke said the Fed is forming an entity to buy commercial paper from businesses. It will essentially be a place where companies with good credit can go to borrow money they need. Janet Tavakoli is a consultant to the financial industry.

Ms. JANET TAVAKOLI (Consultant; Author, "Dear Mr. Buffett"): The cash that should be going into the commercial paper market isn't there at the moment. So, what the Fed is trying to do is to step in and provide the money that corporate America needs to keep rolling.

ZARROLI: Tavakoli is the author of a forthcoming book on the credit crunch called "Dear Mr. Buffett." She notes that, in recent weeks, the Fed and the Treasury Department have taken numerous steps to get the credit markets unstuck. She thinks some of these measures have been risky and could end up being costly to taxpayers, but, she says, the Fed has to do what it can to address what's happening.

Ms. TAVAKOLI: The sad truth is that we don't have a choice right now. The Fed has to keep the economy moving and provide liquidity for the economy.

ZARROLI: And there was some evidence today that the Fed's move had done some good. Credit markets eased a bit. The picture was a lot less encouraging, however, in the stock market. Prices plummeted again, the fifth straight decline. This time, the Dow Jones Industrial Average fell 5.1 percent. Doug Roberts of channelcapitalresearch.com says, so far, the measures taken by the Fed have simply failed to restore confidence, and investors are getting skeptical that things are getting better.

Ms. DOUG ROBERTS (Founder and Chief Investment Strategist, Channelcapitalresearch.com): People are now starting to address the reality that this thing may drag on for quite some time, and no single action, no single silver bullet is going to solve it. It's going to be a series of actions, and during that time period, it's going to be a wild ride as we alternate between euphoria and despair.

ZARROLI: One of the big fears now is that the overseas economies are being drawn into the crisis, and that the problems are growing bigger than U.S. officials can handle on their own. Late today came word that the British government was about to announce a rescue package for its banking system, and Spain said it was raising its guarantee on bank deposits, following the lead of Ireland and Germany. But a lot of economists are saying that these ad hoc measures haven't gone far enough, and that only some kind of coordinated action by the major countries will turn things around. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.