Fed to buy massive amounts of short-term debt to unlock credit

The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debt in a dramatic...

The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debt in a dramatic effort to break through a credit clog that is imperiling the economy.

A day after financial markets around the world had one of their worst performances in years, the Fed invoked Depression-era emergency powers to begin buying commercial paper — short-term funding that many companies rely on to pay their workers and buy supplies.

The move comes against a backdrop of increasing concern that the global economy could be headed for a recession. There is growing pressure for the US government to do more beyond the $700 billion financial bailout package President Bush signed into law Friday.

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Bush reached out to European leaders on Tuesday to urge coordination on efforts to solve the financial crisis spreading around the globe. The White House said Bush was open to the idea of a leaders’ summit on the economic upheaval.

Markets are hoping that the Fed, acting with other countries, will cut interest rates either at or before its next scheduled meeting on Oct. 28-29. The Fed’s key interest rate now stands at 2 percent.

Fed Chairman Ben Bernanke may offer clues on the Fed’s next move when he speaks Tuesday afternoon on the economic outlook and developments in financial markets. The government’s bailout package is aimed at thawing lending.