Leave your feedback Share Copy URL https://www.pbs.org/newshour/show/federal-reserve-moves-to-stabilize-market Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Transcript The Federal Reserve said it would inject $38 billion into the banking system in response to the stock market's volatility, and central banks globally may take similar action. A former Federal Reserve governor and a Bush administration economic adviser explain the move. Read the Full Transcript Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors. JEFFREY BROWN: The Federal Reserve's moves today were just part of a worldwide effort to reassure markets concerned about the availability of credit. All together, central banks have pumped some $326 billion into the global financial system in the past 48 hours.Two men who've faced the challenge of responding to troubled markets join us now. Laurence Meyer was a governor of the Federal Reserve from 1996 to 2002. He was appointed by President Clinton. He's now vice chairman of the economic consulting firm Macroeconomic Advisers.Glenn Hubbard chaired President Bush's Council of Economic Advisers from 2001 to 2003. He's now dean of the Columbia Business School.Well, Glenn Hubbard, let me start with you. Why don't you explain what the Fed, other central bankers are doing? What does it even mean to pump extra cash into the financial system?GLENN HUBBARD, Chairman, President's Council of Economic Advisers: Sure. The Federal Reserve joined the European Central Bank and other central banks in adding liquidity to financial markets to make sure that prices reflected underlying risks. The Federal Reserve's action, I think, was very, very important in restoring market confidence, as was the Fed's statement today. The European Central Bank led the way yesterday. JEFFREY BROWN: What does it mean, Mr. Meyer, to put money in? Where does that money come from, and where does it go? LAURENCE MEYER, Former Governor, Federal Reserve: Well, it creates deposits at the Federal Reserve by lending, by lending to these primary dealers, for example. JEFFREY BROWN: Primary dealers meaning… LAURENCE MEYER: Large banks and broker-dealers. JEFFREY BROWN: So that, what, so they can lend to each other? What is the problem that they're trying to fix? LAURENCE MEYER: So they can lend to each other, and so that they can, more generally, so that the lending can take place between banks and other institutions who lend to each other in the money market. And what happened was that that got disrupted because of a very abrupt re-pricing of risk in the economy. They became less willing to lend to each other.The federal funds rate, which is such an important base rate in the economy, the Fed has a target for it at 5.25 percent, but it was trading at 6 percent. So the Fed had to come in, be very aggressive, injecting reserves, so it pushed that effective federal funds rate back down to its target.