Fed Credit Move Lifts Sagging Stocks

Wall Street had one of its best days in years Tuesday, with the major stock indexes rising sharply on news that the Federal Reserve is taking new steps to address the mortgage crisis.

The turnaround was all the more remarkable because the past few weeks have been a such gloomy time on Wall Street. Investors have been seized by fears that the credit markets are freezing up, which would only weaken an already slowing economy. With the Fed's action, the mood shifted.

The Fed said it would auction off $200 billion worth of Treasury bills to banks and brokerage firms and it would allow them to use their bad mortgage debt as collateral. The Fed is hoping that by making more money available to banks, they'll lend more money to each other and to consumers.

The news sent shares of mortgage-related companies up sharply. Despite the big rally, analysts cautioned that the worst may not be over for the credit markets.

The Fed has launched other efforts to stimulate lending in recent months, cutting interest rates and pumping money into the banking system. But those efforts have failed to keep the economy from slowing. Investors are hoping this time will be different.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.