Fed insists economy still moving

WASHINGTON -- The Federal Reserve announced Thursday that $50 billion will be made available to European banks to help them meet emergency withdrawal needs, while the Bush administration proclaimed prospects still bright for an economic rebound.

Trying to bolster confidence in the wake of the worst terrorist attacks in U.S. history, Treasury Secretary Paul O'Neill insisted that the adverse economic impact would likely be short-lived as transportation gets back to normal with the resumption of airline flights.

"We have every reason to maintain our confidence in the U.S. economy," O'Neill said. "The prospects for a rebound in the U.S. economy remain unchanged."

O'Neill expressed satisfaction with how the banking system has been operating after Tuesday's attacks and with the resumption of trading in Treasury bonds on Thursday, which he called "an important step on the way back to full market operations."

In an effort to prevent the attacks from derailing the global economy, the Fed said it would make up to $50 billion available to European banks with subsidiaries in the United States. Dollars will be exchanged for euros, the new currency for 12 European countries.

While officials announced that the stock markets would remain closed until Monday -- the longest period stock trading has been shut down since the Great Depression -- they insisted that their monitoring of operations at U.S. banks and the global financial system showed few problems following the terrorist attacks at the World Trade Center in New York.

"We've suffered, as you know, quite a blow. But I think the financial systems have proven themselves quite resilient," Treasury Vice Chairman Roger Ferguson told reporters.

Private economists have expressed concerns that the terrorist attacks could push the U.S. economy, which has been struggling with weak economic growth for more than a year, into a full-blown recession.

The Fed also announced it had relocated its New York Fed operations to East Rutherford, N.J., after New York city authorities expressed concerns about possible structural problems at the New York Fed building, a landmark in the city's financial district which was located only a few blocks from the destroyed World Trade Center towers.

The Fed's decision to make $50 billion available to European banks followed Wednesday's joint statement from the world's seven richest countries, pledging that their central banks would coordinate activities to make sure emergency withdrawals did not destabilize any of their banking systems.

A separate Fed report showed that banks had taken the Fed up on its offer to supply emergency loans to banks facing crash crunches because of heavy withdrawals. The amount of loans outstanding totaled $45.6 billion for the week ending Wednesday, a sharp increase of $45.4 billion from the level of the previous week. The heaviest demand for loans came at Fed regional banks in New York and Richmond, Va., which serves the Washington area.

Private economists predicted the Fed's efforts to supply additional money to banks would soon be followed by further interest rate cuts.

Oct. 2.