WASHINGTON, October 22, 2008 (AFP) – The US Federal Reserve reached deeper into the troubled financial system on Tuesday, offering up to 540 billion dollars of help to money market mutual funds in its latest response to the credit crunch.
Under a new program, the Fed offered the funds to back a private sector initiative to buy highly rated short-term debt instruments, including certificates of deposit and commercial paper, from money market investors.
The market for these instruments, which in normal times are considered safe investments offering modest returns, has frozen up in recent weeks due to a lack of investors willing to take the risk of buying them.
The new program “adds another tool to the Fed’s arsenal as it attempts to unclog the credit markets,” wrote analyst Ryan Sweet on Economy.com, a website run by the Moody’s rating agency.
“The new facility is needed as it broadens the Fed’s moves to improve the commercial paper market.”
Disruption in the market for commercial paper threatens companies, which issue the securities to raise cash for short-term needs such as paying salaries.
The central bank called its initiative the Money Market Investor Funding Facility (MMIFF), which will provide financing