Market Insider: Economy's Illness Keeps Spreading

Like anxious relatives in a hospital room, investors have been watching the economy get sicker and sicker with new symptoms surfacing daily.
That trend is likely to stick in the week ahead, and the stock market should stay volatile as it reacts to economic news, including Friday's retail sales report. The economic calendar though is fairly light, but there are earnings reports from major retailers. Those numbers should only confirm that the holiday shopping season is shaping up to be one of the weakest in years.Many economists have been expecting the current quarter to show this recession's biggest decline in GDP. A batch of weak data and growing unemployment has made it seem especially bleak.

Read more at CNBC

Fed Offers Banks Loans Amid Crisis

The Federal Reserve took highly unusual steps Friday to open up the supply of cash to the nation's banks and signaled a willingness to cut interest rates if necessary, at a time when some of the safest financial markets are seizing up and threatening the broader economic outlook.

Specifically, the central bank lowered the discount rate, charged on direct Fed loans to banks, to 5.75% from 6.25%, and took steps to encourage banks to borrow from what is known as its discount window, such as lengthening the term of such loans to as long as 30 days from the current one day. Fed officials also joined a conference call with leading financial executives, aiming to ensure the Fed's moves have maximum impact by making clear that officials are actively inviting more borrowing from the Fed.

The central bank has now used most of the tools at its disposal for restoring normalcy to the markets. If these steps fail, its only major weapon left is a cut in the federal-funds rate target -- perhaps even on or before its next meeting on Sept. 18. The futures market indicated traders expect the Fed to cut rates at least a quarter point at its September and October meetings, and down a full point from the current 5.25% to 4.25% by the end of the year.

Read more in the Wall Street Journal