Senate Banking Committee chairman Christopher Dodd said Tuesday that Federal Reserve Chairman Ben Bernanke agreed to use “all of the tools at his disposal” to restore stability in financial markets roiled by the subprime mortgage crisis.
Dodd, a Connecticut Democrat who is seeking his party’s presidential nomination, said banks should take advantage of lower borrowing costs after the Fed’s surprise decision last week to cut the interest rate it charges them. The senator addressed reporters after meeting Tuesday with Bernanke and Treasury Secretary Henry Paulson in Washington.
The central bank on Aug. 17 cut the so-called discount rate half a percentage point to 5.75 percent to direct more cash to companies starved for short-term financing while avoiding an emergency reduction in its broader lending-rate target. Fed watchers say it may take days before policymakers know whether the action is having the desired calming effect on markets.
“There’s a need for some action,” Dodd said. “The markets are reflecting that. There are some steps that can be taken to minimize this problem from becoming broader.”
Dodd, whose state is home to many U.S. hedge funds, including Pequot Capital Management Inc. and Tudor Investment Corp., said he didn’t specifically ask Bernanke to cut the benchmark federal funds rate, and Bernanke didn’t pledge to do so.
Dodd said he didn’t intend to put political pressure on the Fed, respecting its independence.
“I approve of what they did by lowering the discount rate,” Dodd said. “Historically, the fed fund rates have tracked that and followed that. Certainly, that’s something that I think could be positive.”
Fed spokeswoman Susan Stawick declined to comment on the meeting.
House Financial Services Committee chairman Barney Frank, D-Mass., announced this week that he will hold a hearing Sept. 5 to consider the implications of credit and mortgage-market volatility for U.S. consumers and the global economy. Officials from the Fed, the Treasury and the mortgage industry are scheduled to testify.
