WASHINGTON — Emergency interest rate cuts Wednesday by the Federal Reserve and five other central banks left in doubt whether government efforts to cure the financial crisis would show results fast enough to avert fresh panic and serious economic damage.
The synchronized actions failed to inspire stock investors. The Dow Jones industrial average fell 189 points, or 2%, its sixth straight daily decline. European markets fared much worse, with most stock indexes plunging 5% to 7%. There were only hints of improvement in the credit markets.
U.S. Treasury Secretary Henry M. Paulson acknowledged that the financial system's problems could last for some time.
"I think it's too early to look for encouraging signs in the credit markets," he told reporters. "It's going to take awhile to work through this problem."
The reduction in the Fed's benchmark rate by half a percentage point to 1.5% was just the latest in a series of extraordinary steps by the central bank and the Treasury Department to restore confidence to investors and banks.
The move came five days after the enactment of a $700-billion program to buy up toxic mortgage securities and just one day after the Fed said it would supply vital credit directly to businesses by spending potentially hundreds of billions of dollars to buy short-term corporate debt.
But both of those efforts are still in the implementation stage, and it will be weeks at best, officials say, before the wheels actually begin to turn.
Meanwhile, a housing rescue program passed by Congress over the summer to refinance the loans of troubled homeowners with safer mortgages took effect just this month. A major proponent of that program, Rep. Barney Frank (D-Mass.), demanded Wednesday that major mortgage lenders and servicers voluntarily refinance more of the bad mortgages on their books.
And although rate cuts normally cheer markets instantaneously and spur lending quickly, Wednesday's actions might not have the desired result if banks remain afraid to lend. And even if lower rates do in fact boost the availability of credit, it can take many months for the effects to work their way through the economy.
Nonetheless, the central banks "have to try everything they can at this point in the crisis," said Nigel Gault, chief U.S. economist at forecasting firm Global Insight in Lexington, Mass. "Rate cuts are not a cure-all, but you have to do it. And it's important that this is done globally because this is a global crisis."
