Fed Says it Still Has Arrows in its Quiver

The Federal Reserve has acknowledged that the recession won’t be over anytime soon by extending a number of temporary programs designed to deal with the credit freeze and generally unstable financial markets. These programs include the Fed’s emergency lending facility, which has been a source of cash for firms having trouble borrowing elsewhere, and a program that allows financial institutions to swap unpopular investments (like mortgage-backed securities) temporarily for Treasuries. The various programs were originally slated to expire at the end of January, but for now they’ve been extended to the end of April. The move came the day after Fed Chairman Ben Bernanke (pictured), in a speech before the Greater Austin Chamber of Commerce, noted that interest rate tinkering isn’t the only arrow in the Fed’s quiver when it comes to dealing with the economy. “Regarding interest rate policy, although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited,” Bernanke said, though he hastened to add that “the second arrow in the Federal Reserve’s quiver–the provision of liquidity–remains effective.” The Fed could start buying Treasury notes and bonds in an effort to cool down long-term interest rates, but it would be an unusual move indeed–the last time that happened was during the 1950s, according to the Wall Street Journal. In response to the chairman’s comments, investors bought more Treasuries, driving the yield on the 10-year Treasury note to 2.719 percent, the lowest since the 1970s. Ford has unveiled its new plans regarding the tap dancing it would do to win a federal bailout from Congress. In asking for a $9 billion “bridge loan,” the automaker promises to build more green cars, raise average fuel efficiencies by 35 percent, cancel bonuses for everyone, and make CEO Alan Mulally work for $1 next year (though he’s already made about $50 million during his gig as head of Ford). Assuming sales bottom out in 2009 and then improve thereafter, the company is predicting a return to profitability by 2011. GM and Chrysler have also re-formulated their request for federal money. GM is now asking for $12 billion in loans, plus a $6 billion line of credit in case the recession persists, and is promising an investment of about $2.9 billion in alternative fuels and other technologies by 2012. It will also “explore alternatives”–i.e. consider selling some of its brands, and pay CEO Rick Wagoner, who was somehow worth $21.67 million in 2007, exactly $1 for his services next year. As for Chrysler, which has been through this bailout thing before, the company is asking for $7 billion in bridge loans, and says that it, too, will start building fuel-efficient cards. CEO Robert Nardelli is already reportedly being paid a single greenback a year by Chrysler. All of the Big Three CEOs will reportedly drive to Washington DC this week to testify before Congress. General Electric Co. has announced plans to shrink its finance arm, GE Capital, which has been battered by economic turmoil this year. The company will not, as had been speculated, spin off or otherwise get rid of the unit, but rather reorganize GE Capital to cut costs, and it may inject as much as $5 billion into the unit. The company predicts that GE Capital will earn about $5 billion next year, as opposed to $9 billion this year. Some companies, such as GE, merely make less profit in the midst of a recession. But plenty of others do things the old-fashioned way and lose a lot of money. Sears Holdings Corp., that mid-2000s product of the marriage of Sears and Kmart, posted a larger-than-expected loss in its third fiscal quarter, which ended Nov. 1. Sears lost about $146 million in 3Q08, compared with a profit of $4 million during the same period last year. Same-store sales, another important metric in the retail world, fell 10.6 percent at U.S. Sears department stores, and 7 percent at Kmart.The market was back to its yo-yoing ways, with the Dow Jones index up 270 points for the day, or 3.31, after its considerably loss yesterday. The S&P 500 gained 3.99 percent and the Nasdaq was up 3.7 percent.