Shares of both firms plunged last week, with much of the losses coming in a frantic day of trading Friday, as investors feared that a government bailout would be needed to save them.
The Fed and Treasury Department proposed a rescue plan on Sunday. The Treasury Department is aiming to increase the line of credit that Fannie and Freddie have with the Treasury as well as give Treasury the option to buy shares in the two firms.
And the Fed has opened up its so-called discount window to Fannie and Freddie, which allows the firms to borrow directly from the Fed.
But if Fannie and Freddie require an even bigger rescue, this could make it much more expensive for people looking to buy a house. So one way the Fed could do its part to minimize the pain created by a bailout of Fannie and Freddie would be to keep its benchmark federal funds rate steady at 2% for a while.
"The cost of a mortgage to those buying a home will be higher than it would have been. This, along with other factors, can be managed by the Fed holding its interest rate low for longer than it might have," said James Glassman, senior economist with JPMorgan Chase.
