US to ease mortgage crisis


Summary

The two separate announcements were aimed at curbing contagion from a housing crisis that some fear could derail the US economic expansion by causing credit markets to freeze up further.

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Mr Bernanke, in his first public remarks since global markets were roiled by fears of a liquidity crisis, says the Fed wants to avoid "further tightening of credit conditions," which could have "adverse effects on consumer spending and the economy more generally."

"The (Fed) continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Mr Bernanke adds.

Interest rate cut

Markets viewed the remarks as opening the door to a potential interest rate cut that could lower overall borrowing costs and stimulate credit markets.

Stephen Gallagher, economist at Societe Generale in New York, says the Fed "continues to embrace the market with tough love, but will do what is necessary," including a cut in the federal funds rate if necessary, on September 18.

Some analysts argue Mr Bernanke does not want to be too quick to cut rates, for fears of sparking inflation and being seen as bailing out investors who made risky bets.

But Robert DiClemente, economist at Citigroup, says he believes that "the speed and magnitude by which the overall financial setting has deteriorated are consistent with downside risks … that justify policy (rate) action."

Aid for homeowners

Meanwhile, President George W Bush outlined a series of actions aimed at averting foreclosure for distressed homeowners, many of whom are facing a crisis as adjustable-rate mortgages are reset to reflect higher rates.

One measure announced by Mr Bush would allow homeowners with a good credit history but who cannot afford their current payments to refinance into federally insured mortgages, likely at lower rates.

He also encouraged lenders to try to work out payment arrangements with financially strapped homeowners and urged Congress to pass additional relief measures.

However analysts said the measures would only affect a small fraction of the estimated two million homeowners facing foreclosure.

Mr Bush insisted the federal government has only a "limited" role to play in helping millions of people now struggling to hold onto their homes amid rising interest rates and was not promoting "a federal bailout" of speculators and unscrupulous lenders.


The two separate announcements were aimed at curbing contagion from a housing crisis that some fear could derail the US economic expansion by causing credit markets to freeze up further.

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Mr Bernanke, in his first public remarks since global markets were roiled by fears of a liquidity crisis, says the Fed wants to avoid "further tightening of credit conditions," which could have "adverse effects on consumer spending and the economy more generally."

"The (Fed) continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Mr Bernanke adds.

Interest rate cut

Markets viewed the remarks as opening the door to a potential interest rate cut that could lower overall borrowing costs and stimulate credit markets.

Stephen Gallagher, economist at Societe Generale in New York, says the Fed "continues to embrace the market with tough love, but will do what is necessary," including a cut in the federal funds rate if necessary, on September 18.

Some analysts argue Mr Bernanke does not want to be too quick to cut rates, for fears of sparking inflation and being seen as bailing out investors who made risky bets.

But Robert DiClemente, economist at Citigroup, says he believes that "the speed and magnitude by which the overall financial setting has deteriorated are consistent with downside risks … that justify policy (rate) action."

Aid for homeowners

Meanwhile, President George W Bush outlined a series of actions aimed at averting foreclosure for distressed homeowners, many of whom are facing a crisis as adjustable-rate mortgages are reset to reflect higher rates.

One measure announced by Mr Bush would allow homeowners with a good credit history but who cannot afford their current payments to refinance into federally insured mortgages, likely at lower rates.

He also encouraged lenders to try to work out payment arrangements with financially strapped homeowners and urged Congress to pass additional relief measures.

However analysts said the measures would only affect a small fraction of the estimated two million homeowners facing foreclosure.

Mr Bush insisted the federal government has only a "limited" role to play in helping millions of people now struggling to hold onto their homes amid rising interest rates and was not promoting "a federal bailout" of speculators and unscrupulous lenders.