A new, more powerful Fed emerges in crisis

"So long as financial conditions warrant, we will continue to look for ways to reduce funding pressures in key markets," he said, opening the door wider to an interest rate cut on or before the Fed's Oct. 28-29 meeting.

The Fed is largely free from constraints that bog down other policymakers. Also, it is the only U.S. institution with the ability to create money out of thin air. But that can be inflationary, and the Fed must be careful to separate its powers of raising or lowering the nation's money supply from the financing of the new bailout programs.

The Treasury Department will provide the money for the loans, funneled through the New York Federal Reserve, for the programs announced by the Fed Monday and Tuesday.

Congress created the Federal Reserve in 1913 to prevent financial panics such as runs on banks. Its powers were expanded in 1933 and 1935. Although its members are nominated by the president and confirmed by the Senate, and it is subject to congressional oversight, its decisions do not have to be ratified by either the president or Congress.

While Bernanke has worked hand-in-hand with Treasury Secretary Henry Paulson, the Fed's independence was underscored on Tuesday by White House press secretary Dana Perino. Asked about the commercial-paper initiative, Perino told reporters, "That was an independent decision made by them."

"This was authority that they were able to take on their own, and it was part of a pattern that we've seen that the Fed is increasingly willing to find innovative ways to try to get the markets moving again, since that's the goal," she said.

Banks face Feb. 1 deadline on compensation The nation's biggest banks face a February deadline for submitting employee compensation plans to the Federal Reserve, according to people with knowledge of the process. Obama: Job losses expected to continue Consumer spending tumbles, incomes flat Economy grows at best pace in 2 years New jobless claims drop slightly

The Bernanke Fed has its critics. Former Chairman Paul Volcker has said its been acting "at the limits" of it's legal authority. Rep. Ron Paul, R-Texas, made abolishing it a central part of his GOP presidential candidacy. And Sen. Jim Bunning, R-Ky., an opponent of Fed and Treasury bailouts, said recently, "The greed on Wall Street is only exceeded by the stupidity of the Treasury secretary and the chairman of the Federal Reserve."

Edwin M. Truman, a former Fed economist now with the Peterson Institute for International Economics in Washington, said that while some may question the Fed's recent straying from bank regulation and monetary policy, the authority it is now invoking was expressly given to it by Congress in 1935 "rather than to Treasury. And there's considerable congressional oversight."

"There aren't any magic bullets. At one level, we collectively are going to just have to work our way through this thing. We hope without too much damage," Truman said.

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