WASHINGTON Scrambling to break the grip of a worsening global credit crisis, the Federal Reserve stepped up action Thursday pumping billions into financial markets here and abroad.
The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.
The maneuver takes place as Fed Chairman Ben Bernanke battles the worst financial crisis since the Great Depression. In the last few days, the American financial system has been badly shaken as bad bets on dodgy mortgage-backed securities claimed more Wall Street giants.
Seeking to send a reassuring message to an anxious country, President Bush said he canceled a trip to stay in Washington and to huddle closely with Treasury Secretary Henry Paulson. The government, he said, has taken "extraordinary measures" in recent weeks to try to get the crisis in hand. Yet, he acknowledged, the financial markets continues to deal with "serious challenges."
Bush pledged: "the American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence."
The cash infusion was designed to help ease a spike in the overnight lending rate between banks. A sharp rise in such borrowing costs makes banks reluctant to lend to each other, worsening already tight credit conditions.
Hours earlier at 3 a.m. the Fed in coordinated action with other central banks moved to ease the intensifying crisis that erupted just over a year ago. They banded together to flood global markets with dollars. All told, the Fed increased lines of cash to central banks by $180 billion to $247 billion.
The measures are "designed to improve the liquidity conditions in global financial markets," the Fed said in a statement. "The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."
Working with the Fed in the coordinated action were the European Central Bank, the Swiss National Bank, the Bank of Japan, the Bank of England and the Bank of Canada.
Bush praised the Fed's early morning move with other central banks, called it a "substantial step" to infuse cash markets and thaw nearly frozen credit conditions.
The crisis has rocked Americans, thrust the White House in crisis mode and galvanized presidential contenders.
Democratic presidential contender Sen. Barack Obama said the Fed was taking the right steps to "maintain the functioning of our financial system and the flow of credit to American households and businesses."
The Fed actions come during an especially tumultuous week. The stock market has nosedived and investors have fled to super-safe investments like Treasury securities and gold. Briefly on Wednesday investors were willing to pay more for certain Treasury securities than they expected to get back when the investments matured, a rare event.
At the start of the week Lehman Brothers, the country's fourth-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn't go it alone anymore, found help in the arms of Bank of America. Insurance giant American International Group was given an $85 billion emergency loan from the Fed in a deal allowing the government to take control of the company.
So far this year, 11 federally insured banks and thrifts have failed, compared with three last year. The country's largest thrift, Washington Mutual Inc., is faltering.
The Fed on Tuesday held a key rate steady at 2 percent Tuesday, refusing to reverse course and lower borrowing costs in the midst of deteriorating financial conditions. The Fed had ended its most aggressive rate-cutting campaign in decades earlier this year out of concern that more rate cuts would worsen inflation.
Fed officials say harder-to-get credit and financial troubles have blunted the energizing impact of the central bank's rate reductions on consumers and businesses. The economy is losing traction and the unemployment rate is at a five-year high of 6.1 percent.
Against that backdrop, some argued that another rate cut probably wouldn't do much to turn around worried consumers and bolster the economy. Others feared dropping rates could send a wrong message to financial companies that made bad bets.