Fed to buy commercial paper from mutual funds - KSWO 7News | Breaking News, Weather and Sports

Fed to buy commercial paper from mutual funds

The Federal Reserve announced Tuesday that it will start buying commercial paper - a crucial short-term funding mechanism many companies rely on for day-to-day operations - from money market mutual funds.

It's the latest effort by the central bank to break through a credit clog that has hobbled lending and threatens to plunge the country into a deep and painful recession.

The Fed is tapping its Depression-era emergency powers and creating a new facility to buy a vast array of commercial paper from the funds. Money market mutual funds have been under pressure as skittish investors demand withdrawals. Many companies rely on commercial paper to pay workers and buy supplies.

The situation has led to an intense credit crunch for companies depending on commercial paper.

"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests," the Fed explained.

The Fed plans to buy an array of commercial paper from the funds - including some that is not backed by assets as well as those with remaining maturities of 90 days or less. The Fed also will buy dollar-denominated certificates of deposit.

By doing so, the Fed hopes to improve conditions so banks and other financial institutions will be more inclined to lend to each other, and to consumers and businesses.

"Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households," the Fed said.

For about a month, the Fed has been making billions of dollars worth of loans to money market mutual funds - via banks - to help relieve pressures on the funds. And, in a separate program that launches on Oct. 27, the Fed will buy vast amounts of commercial paper from an array of companies.

Jeannine Aversa, AP Economics Writer © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
  • Local NewsNewsMore>>

  • Baby born prematurely dies after mother's 911 calls unanswered

    Baby born prematurely dies after mother's 911 calls unanswered

    Tuesday, July 17 2018 3:23 AM EDT2018-07-17 07:23:03 GMT
    Tuesday, July 17 2018 3:23 AM EDT2018-07-17 07:23:03 GMT
    Baby Angel died after she was born not breathing at her mother's home July 5. (Source: Family photos/KETV/CNN)Baby Angel died after she was born not breathing at her mother's home July 5. (Source: Family photos/KETV/CNN)

    The director of the 911 call center says dispatchers were overwhelmed with up to four times the normal amount of calls, most of them fireworks complaints.

    The director of the 911 call center says dispatchers were overwhelmed with up to four times the normal amount of calls, most of them fireworks complaints.

  • US arrests, accuses woman of acting as Russian agent

    US arrests, accuses woman of acting as Russian agent

    Monday, July 16 2018 4:09 PM EDT2018-07-16 20:09:37 GMT
    Tuesday, July 17 2018 3:22 AM EDT2018-07-17 07:22:55 GMT
    (AP Photo/Markus Schreiber). U.S. President Donald Trump, left, listens to Russian President Vladimir Putin during a press conference after their meeting at the Presidential Palace in Helsinki, Finland, Monday, July 16, 2018.(AP Photo/Markus Schreiber). U.S. President Donald Trump, left, listens to Russian President Vladimir Putin during a press conference after their meeting at the Presidential Palace in Helsinki, Finland, Monday, July 16, 2018.

    Federal authorities have arrested a Russian woman accused of conspiring to infiltrate American political organizations at the direction of a senior Kremlin official.

    Federal authorities have arrested a Russian woman accused of conspiring to infiltrate American political organizations at the direction of a senior Kremlin official.

  • Hometown hero Harper wins thrilling HR Derby over Schwarber

    Hometown hero Harper wins thrilling HR Derby over Schwarber

    Monday, July 16 2018 10:47 PM EDT2018-07-17 02:47:41 GMT
    Tuesday, July 17 2018 3:22 AM EDT2018-07-17 07:22:03 GMT
    Washington Nationals Bryce Harper (34) reacts to his winning hit during the Major League Baseball Home Run Derby, Monday, July 16, 2018 in Washington. (AP Photo/Alex Brandon)Washington Nationals Bryce Harper (34) reacts to his winning hit during the Major League Baseball Home Run Derby, Monday, July 16, 2018 in Washington. (AP Photo/Alex Brandon)

    Harper thrills home crowd and father by winning Home Run Derby over Schwarber 19-18.

    Harper thrills home crowd and father by winning Home Run Derby over Schwarber 19-18.

Powered by Frankly