by David Lightman

Federal Reserve Board Chairman Ben Bernanke said today he would use all the tools available to him to ease the current market volatility and credit crunch--a possible signal that the Fed has not ruled out an interest rate cut and was willing to take more aggressive regulatory action against rogue lenders if necessary.

Bernanke offered that message to a satisfied Senate Banking Committee Chairman Christopher J. Dodd, as Bernanke, Dodd and Treasury Secretary Henry M. Paulson Jr. met for about 40 minutes in Dodd's Capitol Hill office. Neither Bernanke nor Paulson spoke to reporters afterward.

Immediately after the session, Dodd suggested Bernanke was not pleased with the markets' response to the Fed's efforts to stabilize the markets, and stocks moved somewhat higher in volatile trading in reaction to the news.

Dodd was asked repeatedly if he got any assurances from Bernanke that the Fed was prepared to act quickly.

"I asked the chairman of the Fed whether or not he was willing to use all the tools available to him," Dodd said. "He said he was."

Typically, though, Bernanke did not specify what some of those tools could be. The Fed Friday cut the discount rate by half a percentage point, and analysts expect a cut in the federal funds rate soon, perhaps even before the board formally meets again Sept. 18.

But Dodd seemed pleased with Bernanke.

"I'm impressed with the Fed's action over the last number of days," Dodd said. "I'm impressed with the fact that the chairman of the Federal Reserve Board is not reluctant to use the tools available to him.''

He was less charitable toward Paulson.

Before the meeting, Paulson appeared on CNBC and explained that "Markets straighten themselves out over time. This will--this is going to take a while to play out."

Dodd was not pleased. "I'm disappointed that the administration seems reluctant here to really take advantage of the power that exists to let the federal regulators deal with the issue of liquidity with (Freddie Mac and Fannie Mae)," he said.

Dodd has been urging regulators to allow the two government-sponsored agencies to raise their portfolio caps, a move he believes will help boost the mortgage market.

But the administration has been reluctant to act, saying it wants the agencies, battered in recent years by problems with their internal controls, to show more stability.

Paulson did give Dodd one reason to be encouraged. He told CNBC, and apparently reiterated to Dodd, how "the president wants us to be focused on actions that can be taken, things that we can do to help mortgage holders who are in danger of losing their homes."

Dodd welcome that view, calling it "a very positive statement."

But he criticized other administration rhetoric.

"I'm concerned that you're getting sort of a dual message here," Dodd said. "One, that's this is going to take a longer time to fix. But everything is hunky-dory. There's a need for some action here, and I think the markets are reflecting that and recognizing this is not going to be solved overnight."

Dodd was not eager for Congress to act, saying "the ball is really in their court," meaning the administration and the Fed. But if necessary, he said, lawmakers could begin to respond aggressively.