2:23 PM EST
| Dow | 12,009.13 | +268.98 | |
| Nasdaq | 2,218.33 | +48.99 | |
| S&P 500 | 1,301.07 | +27.70 |
Woo-hoo! Mama wants a brand new...um...actually, I don't want anything but to keep hold of my retirement funds. Kudos to the FRB for helping out:
AP
Stocks Up Sharply After Fed Credit PlanWall Street Moves Sharply Higher After Fed, Other Central Banks Move to Ease Credit Crisis
The program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed -- acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt that includes slumping mortgage-backed securities.
The Fed's latest move was seen as a direct boost to struggling banks by avoiding having to dramatically slash interest rates when the central bank's policymaking Open Market Committee meets next week. Economists continued to be concerned about the unrelenting rise in oil prices and the dollar's weakness, which contribute to inflation -- and cutting rates only add to these pressures.
The market's reaction contrasts with its more skeptical view during the past few weeks about the central bank's ability to keep the economy out of a recession. However, this latest step was seen as a direct lifeline to investment banks -- which previously couldn't borrow in past Fed liquidity plans.
"The big problem has been the financials, and this helps supply money directly to the banks and may take some of the need for aggressive rate cutting off the table," said Peter Dunay, chief investment strategist at Meridian Equity Partners. "The Fed is basically going to take the bad loans off the banks' books, and the market seems to be loving that idea."
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Reuters
Dollar soars as Fed announces liquidity measuresNEW YORK (Reuters) - The dollar rose sharply on Tuesday after the Federal Reserve announced new measures to inject liquidity into the financial system, easing concern about a deepening credit crisis and a U.S. recession.The dollar soared against the yen and was on pace for its biggest daily gain in three months after the Fed said it would lend primary dealers up to $200 billion in Treasury securities and allow them to use agency and mortgage debt as collateral.
It also rebounded from a record low against the euro and jumped against the Swiss franc after the Fed announced its plans, which will be coordinated with other central banks.
"Anything the Fed can do to help the credit market will help the dollar," said Ron Simpson, director of foreign exchange research at Action Economics in Tampa, Florida. "At least the Fed is being creative and working on the problems."
The dollar hit a session high of 103.52 yen, well off an eight-year low around 101.40. It last traded at 102.80 yen, up 1.2 percent on the day, its best daily performance since December.
The euro retreated from an all-time high just short of $1.55 and fell as low as $1.5283 before edging back to $1.5335, little changed on the day.
The Fed's action cooled market expectations for a sharp interest rate cut at the central bank's March 18 policy meeting, and that helped take some pressure off the dollar.
U.S. interest rate futures were pricing in a 72 percent perceived chance that the Fed will cut its benchmark rate to 2.25 percent from 3 percent next week. Such a cut had been fully priced in before the Fed's move.
"In a nutshell, this demonstrates the Fed will use every means at its disposal to get the economy going," said Jonathan Lewis, founder of Samson Capital Advisors in New York.
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The "but, howevers":
The actual impact on the banking system will be minimal, said Robert Loest, portfolio manager at Integrity Funds, saying the government's need to borrow money will absorb half of the $200 billion in 30 days. But the announcement has a psychological impact, and that's why stocks are responding today, he said.
"It's not that there isn't enough money out there, it's not a liquidity issue," Loest said. "It's a confidence issue."
"I think the market is in a process of a psychological bottoming," he said.
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The stock market rally Tuesday could be short-lived as the jury is still out on the effectiveness of the Federal Reserve's new measures to add liquidity to global credit markets, some analysts said Tuesday.
'A short covering rally is likely to ensue leading up to next week's regularly scheduled Fed meeting,' UBS (NYSE:UBS) analyst George Bory said in a note to clients.
'However, the rally could fade rather quickly as the market realizes that the [Fed's new Term Securities Lending Facility] doesn't solve the problem of a weak housing market, a capital deficient financial system and deteriorating corporate credit quality.'
U.S. stocks surged Tuesday with the Dow Jones Industrial Average rallying nearly 300 points in intraday trading after the Fed said it will expand its securities lending program to loan up to $200 billion Treasury securities under a new Term Securities Lending Facility (TSLF).
The Fed also said it would allow dealers to use agency debt, agency residential-mortgage-backed securities and non-agency private label residential MBS as collateral.
In the near-term, Bory said the Fed's new measure helps slow the pace of bearish sentiment and should marginally help banks as they attempt to recapitalize.
However, in the longer-term, 'it remains to be seen if banks are able/willing to pass along the pop in liquidity to non-bank borrowers,' he said. 'More favorable liquidity is unlikely to be extended outside the banking system until the banks start to repair their own balance sheet.'
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