The drama continues in the stock–and credit–markets, as stocks rallied again on October 20, with the Dow industrials up 411.46 points, or 4.65%, to close at 9,265.43. The S&P 500 was up 44.85 points, or 4.8%, to close at 985.40. Meanwhile, Libor, the rate set in London at which banks led to each other, continued to fall, a further signal that the credit squeeze may be loosening. Libor for three-month dollar loans fell to 4.05875%, from 4.41875 on October 17. However, the Federal funds rate is still much lower than Libor; the overnight Fed funds rate fell to 1.5125% on Monday from 1.668725% on Friday.
Federal Reserve Board Chairman Ben Bernanke testified at the House Budget Committee on October 20, saying the recent measures taken by the Fed, Treasury, the FDIC, foreign central banks, and the Congress “will help restore trust in our financial system and allow the resumption of more-normal flows of credit to households and firms.” Bernanke was quick to say that such a restoration “will not quickly eliminate the challenges still faced by the broader economy.” He admitted, moreover, that with the economy “likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”