Is Bernanke More Concerned About a Recession, Inflation, or the Credit crunch?

DailyFx:

The Federal Reserve is pulling out all the stops, as the Bank announced on Tuesday morning that they would expand their securities lending program in an attempt to instill stability in the financial markets. Furthermore, the Fed joined forces with the ECB and SNB to triple the size of existing swap lines, which will allow them to borrow dollars from the US central bank and then lend the dollars to their own banks. The moves indicate that the Fed is now in panic mode as they fight to prevent a seizure in the credit markets. How about that pesky inflation issue? Crude oil has gone on to hit yet another record of $110/bbl, but with economic indicators pointing towards recession, the FOMC has brushed off the building price pressures and will continue to slash the fed funds rate aggressively.

The U.S. Federal Reserve has come up with yet another way to kick-start the credit markets, if only its innovations would start working already. This latest plan allows, the Fed to let the big brokerages offload their hard-to-sell mortgage holdings for easy-to-sell Treasury bonds. Interest rate cuts, which have brought the federal funds rate to 3.0% from 5.25% since September, have not achieved the goal of loosening up tightened lending conditions, so investors cheered this new approach.

It was evident as the Dow jumped 417 points, or 3.6%, to 12,157, while the S&P 500 soared 47 points, or 3.7%, higher to 1,321, and the Nasdaq led the way with a 4.0% leap, adding 86 points, or 2,256. Asian shares rebounded on Wednesday, with major indices gaining around 2 percent.

The U.S. dollar was unable to sustain the strong rally that had seen the currency rebound from record lows against the euro on Tuesday, with many sceptical that the liquidity steps will solve the fundamentals problems faced by credit markets. Expectations the dollar may soon resume its slide stopped a decline in oil prices, keeping U.S. crude futures within touch of a record high near $110 a barrel, while gold edged higher after its recent retreat from a peak hit last week.

Some market analysts are of the opinion that the new measures were implemented to rescue certain brokerage firms (eg Bear Sterns) and financial institutions to aid their liquidity problems and part of Fed's move buy time in reducing of interest rate by 0.50% instead of the widely anticipated cut of 0.75% coming March 18.