Wall Street Limits Damage

The Dow finished the week up 0.4%, while the S&P 500 added 1.4% and the Nasdaq rose 1.3%. The turmoil had the Dow closing with swings of more than 100 points in three out of five sessions.

In all, the Fed injected $62 billion in liquidity into the system Thursday and Friday. The central bank also issued a statement saying it would provide reserves as necessary to keep federal funds rate as close as possible to its target rate of 5.25%.

"In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," the Fed said. "As always, the discount window is available as a source of funding."

Bill Hampel, chief economist with the Credit Union National Association, said the Fed was acting prudently.

"Not all the debt out there is bad debt, but this mortgage scare has people treating everything like it's junk," said Hampel. "The banks have stopped doing anything while they do the sort of due diligence on these complex securities (mortgage-backed securities and other derivatives) that they should have been doing all along."

Hampel believes the Fed will likely issue a rate-cut soon, since the outlook on the U.S. economy is shifting. Last week, the central bank opted to hold rates steady, citing the risk of inflation as its chief concern.