Federal Reserve Board

The Federal Reserve has dramatically expanded its role in the economy over the last 18 months, and the Obama administration has proposed enhancing that authority as part of an overhaul of financial regulations. But many members of Congress -- Democrats and Republicans -- are seeking to curtail the central bank's authority instead of expand it. Worried about the increased power of the complex and mysterious Fed, and upset it did not do more to prevent the deep recession, Capitol Hill has focused its anger over the financial crisis and its aftermath on the central bank.

The chilling realization that some things in high finance will never change, notwithstanding the current crisis, came to me the other day when I discovered that the Federal Reserve would accept only AAA-rated securities as collateral for its new program to finance consumer loans. On the surface this seems only prudent -- after all, what could be more gilt-edged than paper given a top investment grade by two of the three most-recognized credit rating agencies, as the Fed demands?

Federal Reserve Chairman Ben S. Bernanke, acknowledging that slumping employment and continued turmoil in financial markets pose mounting threats to the U.S. economy, said Thursday that the central bank may be ready to make "substantive" interest rate cuts to avoid recession. Bernanke's comments in a speech in Washington suggested that the Fed would slash its key target interest rate by half a point from its current 4.25% when it meets this month.

Here is the statement issued Tuesday by the Federal Reserve: The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points [three-quarters of a point] to 3.5%. The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.

The head of the European Central Bank on Wednesday shot down hopes that the bank would join the U.S. Federal Reserve in easing credit, fueling a fresh sell-off in stocks across the region. In a speech before the European Commission, central bank President Jean-Claude Trichet made it clear that damping inflationary pressures remained his top priority.

Has the Federal Reserve painted itself into a corner? That's one question on investors' minds as central bank officials convene for a two-day meeting today to consider a further interest rate cut. The session comes as the Fed tries to walk a monetary tightrope: attempting to address concerns that the U.S. economy may be tipping into a recession without looking as if it is being pushed by panicky stock-market traders to take steps that could promote inflation.

The Federal Reserve pressed ahead Wednesday with one of its most aggressive rate-cutting campaigns ever in an effort to ease the effects of a housing slump, a credit crunch and a possible recession. And the central bank left itself room to shrink interest rates again if necessary.

An ominous scenario of rising prices and slowing growth showed itself in spades Wednesday as the government reported that consumer prices are rising at a fast pace even as the housing sector remains stuck in its worst slump in a quarter-century. The combination of inflation and faltering growth -- the infamous "stagflation" of the 1970s -- creates a potential double bind for economic policymakers: Fight one and risk feeding the other.

Federal Reserve Chairman Ben S. Bernanke painted a bleak picture of the economy Wednesday, suggesting tough times ahead for many Americans and all but guaranteeing further interest rate cuts as the central bank tries to avert the worst of the trouble. Bernanke described a triple threat of little or no growth, more financial market freeze-ups and rising inflation, an ugly combination that would raise unemployment and leave many would-be home buyers and business borrowers without funds.

Attempting to break the credit logjam that is threatening the already weakened economy, the Federal Reserve on Tuesday announced a new program to pump massive sums into the financial system. The battered stock market, which on Monday had fallen to its lowest levels in at least 18 months, responded with its biggest one-day rally in five years. The Dow Jones industrial average rocketed 416.66 points, or 3.6%, to 12,156.81.