Fed Concludes Economic Woes Likely to Spill Into 2009

WASHINGTON — Federal policy makers have reached a consensus that the turmoil plaguing the housing and financial markets is likely to spill deep into 2009, becoming one of the most significant domestic problems to confront the next president when he steps into the Oval Office in January.

In a speech on Tuesday, Ben S. Bernanke, the chairman of the Federal Reserve, gave his strongest hint to date of an emerging consensus that problems will persist when he outlined a series of steps the Fed is considering taking in the coming months. One such step would extend into next year low-interest lending programs to Wall Street’s largest investment banks.

The programs, one of which was set to expire in September, can exist only if the Fed issues a finding that there are “unusual and exigent circumstances” that justify them.

Mr. Bernanke also recommended that Congress grant the Fed broader authority to monitor and supervise the financial markets to assure greater stability in the future. But with time running out on this session, lawmakers are unlikely to adopt such legislation before next year.

Treasury Secretary Henry M. Paulson Jr., also speaking Tuesday, said that the Bush administration was working to prevent as many home foreclosures as possible, but that “many of today’s unusually high number of foreclosures are not preventable.” Mr. Paulson said 1.5 million home foreclosures were started in 2007 and that an estimated 2.5 million more will take place this year.

Still, the markets seemed reassured that Washington officials were redoubling their efforts to resuscitate the weak housing sector, despite the downbeat comments. The Dow Jones industrial average closed up 1.4 percent, or 152 points.

Mr. Bernanke said that the Fed would issue next week long-awaited rules to restrict the issuance of new exotic mortgages and high-cost loans for people with weak credit. Such mortgages have been a central cause of the current market problems.

The Federal Housing Administration will also begin an expanded effort next week to help a larger group of troubled homeowners refinance their adjustable mortgages. Under the plan, homeowners are eligible to refinance even if they have missed up to three monthly mortgage payments over the last 12 months. Homeowners who have fallen behind on their payments because of job loss, declining wages and family illness will also be eligible, even if their rates have not increased. Homeowners are now eligible only if they were current on their mortgages before their interest rate was adjusted upward.

For its part, Congress is close to completing legislation on a $300 billion foreclosure-rescue plan that would help troubled borrowers refinance into more affordable loans insured by the federal government. The Senate is expected to approve a measure by next week.

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