Fed cuts discount rate, announces new steps

The Federal Reserve unexpectedly lowered the
discount rate it charges on direct loans to banks and announced a new facility
through which it would lend to financial firms to borrow at the new rate.

Analysts were skeptical that the Fed’s action,
the latest in a series of emergency moves to support global credit markets,
would be enough to avert further turmoil.

The U.S. dollar fell below 97 yen to a 12-year
low, while Treasuries surged as investors fled to safer assets. U.S. stock
index futures pointed to a sharp decline in stocks on Wall Street on Monday.

“I can’t imagine it’s going to be a good
day in financial markets tomorrow just because of fear, and not because of any
particular knowledge, but just because of fear of what could be in or what’s
not in all financial service company balance sheets,” said Timothy
Ghriskey, chief investment officer at Solaris Asset Management in New York.

The Federal Reserve said it cut the discount
rate to 3.25%from 3.5%, effective immediately. It also said it was setting up a
new lending program under which so-called primary dealers could borrow directly
from the Fed at that same rate.

The global credit crisis began last year when
the deteriorating U.S. housing market set off a chain of events that created
more than $100bln in losses at the world’s largest banks.

Bear Stearns’ cash reserves were drained by
fleeing customers on Thursday, and on Friday the bank secured emergency funding
from the Federal Reserve, extended through JPMorgan.