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| Federal Reserve in rate cut hint | |
| (about 1 hour later) | |
| The head of the Federal Reserve has hinted that rates may be cut to stem the US financial crisis caused by a slump in the housing market. | |
| Ben Bernanke said that the Fed would "promote general financial stability". | |
| Later, US President George W Bush is expected to set out plans to help millions of homeowners with sub-prime mortgages avoid defaulting. | |
| Sub-prime mortgages are higher risk loans offered to people with poor credit ratings or on low incomes. | Sub-prime mortgages are higher risk loans offered to people with poor credit ratings or on low incomes. |
| Mr Bernanke said that it was not the job of the Fed "to protect lenders or investors from the consequences of their financial decisions". | |
| But he added: "The Fed stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of the markets." | |
| Loan guarantees | |
| Rising numbers of defaults on such loans have hit banks, which have bought debt that include these loans. | Rising numbers of defaults on such loans have hit banks, which have bought debt that include these loans. |
| Worries about defaults have roiled stock markets and investors around the world, and raised the cost of borrowing worldwide. | Worries about defaults have roiled stock markets and investors around the world, and raised the cost of borrowing worldwide. |
| Reports suggest President Bush will call for Congress to support his plans to allow the government-backed mortgage insurer - the Federal Housing Administration - to guarantee loans for borrowers who are more than 90 days behind with their payments. | Reports suggest President Bush will call for Congress to support his plans to allow the government-backed mortgage insurer - the Federal Housing Administration - to guarantee loans for borrowers who are more than 90 days behind with their payments. |
| President Bush is due to speak at 1110 in Washington (1610 BST) | |
| President Bush is also expected to discuss ways to prevent such a crisis in the mortgage market happening again. | President Bush is also expected to discuss ways to prevent such a crisis in the mortgage market happening again. |
| This is likely to include highlighting the need for strong enforcement of laws that prevent irresponsible lending. | This is likely to include highlighting the need for strong enforcement of laws that prevent irresponsible lending. |
| Democrats claim the Bush administration should have done this when it first came to power. | Democrats claim the Bush administration should have done this when it first came to power. |
| Emergency funds | Emergency funds |
| Mr Bernanke will discuss the ongoing housing market and credit woes in a speech to the annual gathering of international central bankers and economists at Jackson Hole in Wyoming. | Mr Bernanke will discuss the ongoing housing market and credit woes in a speech to the annual gathering of international central bankers and economists at Jackson Hole in Wyoming. |
| Many US sub-prime borrowers risk losing their homes | |
| Analysts will be looking out for indications that the central bank's rate-setters will cut the cost of borrowing by one quarter of a percentage point at their next meeting on 18 September. | Analysts will be looking out for indications that the central bank's rate-setters will cut the cost of borrowing by one quarter of a percentage point at their next meeting on 18 September. |
| The Fed has so far released billions of dollars of emergency funds into the financial system in an attempt to ease fears over the lack of available credit. | The Fed has so far released billions of dollars of emergency funds into the financial system in an attempt to ease fears over the lack of available credit. |
| It has also cut the interest rate at which it lends to banks. | It has also cut the interest rate at which it lends to banks. |
| "It's pretty important because Bernanke's going to talk about housing," said Binay Chandgothia, chief investment officer for Principal Asset Management. | "It's pretty important because Bernanke's going to talk about housing," said Binay Chandgothia, chief investment officer for Principal Asset Management. |
| "And housing is perceived to be what is causing consumer confidence to go down." | "And housing is perceived to be what is causing consumer confidence to go down." |
| Record defaults | Record defaults |
| The crisis in the US sub-prime mortgage sector has been caused by American mortgage rates rising sharply over the past year. | The crisis in the US sub-prime mortgage sector has been caused by American mortgage rates rising sharply over the past year. |
| This has meant a growing number of sub-prime borrowers have been unable to meet their monthly payments as their initial low rates expire, leading to record levels of defaults. | This has meant a growing number of sub-prime borrowers have been unable to meet their monthly payments as their initial low rates expire, leading to record levels of defaults. |
| The result has not only been significant financial difficulty for banks and investment firms heavily exposed to the sub-prime market, but also the recent stock market turmoil. | The result has not only been significant financial difficulty for banks and investment firms heavily exposed to the sub-prime market, but also the recent stock market turmoil. |
| This is because of fears that the crunch in the sub-prime sector will spread to the wider loans market as banks become far more cautious about whom they lend to. | This is because of fears that the crunch in the sub-prime sector will spread to the wider loans market as banks become far more cautious about whom they lend to. |
| The situation has been exacerbated by the fact that sub-prime debt is often resold as part of a wider debt package, meaning that banks and investors are, as yet, unsure about how far the sub-prime downturn could spread. | The situation has been exacerbated by the fact that sub-prime debt is often resold as part of a wider debt package, meaning that banks and investors are, as yet, unsure about how far the sub-prime downturn could spread. |
| A number of firms have already been knocked by the turmoil, most notably the US investment bank Bear Stearns. | A number of firms have already been knocked by the turmoil, most notably the US investment bank Bear Stearns. |
| Its former co-president Warren Spector stood down earlier this month following the collapse in June of two mortgage funds that he had headed. | Its former co-president Warren Spector stood down earlier this month following the collapse in June of two mortgage funds that he had headed. |
| There have also been predictions of job losses on Wall Street and other financial centres around the world as a result of the market turbulence. | There have also been predictions of job losses on Wall Street and other financial centres around the world as a result of the market turbulence. |