Markets Rally after Key Rate Left Alone

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The Federal Reserve kept a key interest rate unchanged Tuesday, saying that they would act if needed even while acknowledging the recent strains in the markets.

In its first unanimous decision this year, the central bank said it would leave the federal funds rate at 2 percent.

Wall Street reacted to the news with stocks ending on a high note after fluctuating throughout the day before the Fed's announcement. The Dow Jones industrial average ended up 141 at the 11,059 level after.

At the start of Tuesday, Investors worried about the financial status of the world's largest insurance company American International Group, Inc.  Wall Street also had its worst day in seven years with the Dow Jones industrial average tumbling by 504 points Monday.

Some ratings companies have reduced their current forecasts for the troubled Wall Street giant. Market watchers are worried that if AIG should fail, the financial effects would be felt worldwide.

Fallen Giants

After the demise of several financial megagiants, many economists have begun to rethink their approaches.

When no buyer stepped up to help Lehman Brothers Monday, Treasury Secretary Henry Paulson said the federal government would not step in to help.

Speaking to reporters at the White House, Paulson insisted that the administration had made the right decision.

"I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers," Paulson said Monday.

President Bush also said that federal policymakers would work "to help the financial system as a whole."

In response the the market turmoil, The White House canceled any press coverage of President Bush's meeting with his chief advisory group on the reeling financial markets.

Source: The Associated Press, CBN News

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