Meltdown Advances Despite Efforts to Limit Damage
"The outlook for economic growth has worsened," Fed Chairman Ben Bernanke told a gathering of business economists on Tuesday.
The slumping economy was underscored by a 1,400-point, or 13 percent, drop in the Dow Jones industrials over the past five trading days.
The crisis threatening all Americans, and investors around the world, was only mentioned in passing by the presidential candidates in a debate Tuesday night.
Republican John McCain called for a program to stem foreclosures by requiring the federal government to renegotiate the mortgages of individual homeowners and make them more affordable, a proposal he has been promoting on the campaign trail.
Democrat Barack Obama claimed the crisis was the "final verdict on the failed economic policies of the last eight years" that President Bush pursued and were "supported by Sen. McCain," a charge he has made before.
Earlier, Bush again sought to strike a reassuring tone and said the nation would make it through an economy blighted by job losses, record foreclosures and shriveled retirement savings. Congress' top budget analyst estimated Tuesday that Americans' retirement plans have lost as much as $2 trillion in 15 months.
With hundreds of billions of U.S. tax dollars already on the line, Bernanke defended the most aggressive federal intervention in the financial system since the 1930s and said regulators are looking for other innovative ways to try to stabilize markets.
"So long as financial conditions warrant, we will continue to look for ways to reduce funding pressures in key markets," he told the National Association for Business Economics on Tuesday, also opening the door wider to an interest rate cut on or before the Fed's Oct. 28-29 meeting.
The key short-term rate under its control, the federal funds rate, is now at 2 percent. Some market watchers suggest the Fed cut could be as large as a full percentage point.
In addition to the $700 billion financial bailout package Bush signed into law Friday, the Fed announced two bold programs. On Monday, it increased a short-term loan program to banks and other financial institutions to as much as $900 billion by the end of the year. And on Tuesday it said it would buy vast amounts of short-term "commercial paper" debt, some of it unsecured, taking the Fed into previously uncharted waters.
Stock markets continue their downward spiral as pressure is building for the U.S. government to do even more.
Bush, saying the economic meltdown has brought tough times for many Americans, pledged that "we're going to come through this."
"Have faith, this economy is going to recover over time," Bush said in a speech at an office supply company in the Washington suburb of Chantilly, Va. "I wish I could snap my fingers and make what happened stop. But that's not the way it works."
The president earlier reached out to European leaders to urge coordination on efforts to solve the financial crisis spreading around the globe. The White House said Bush was open to the idea of a leaders' summit on the economic upheaval.
World finance leaders will be in Washington later this week for a meeting of the World Bank and International Monetary Fund.