"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 said in a statement released in Washington today. About $500 billion has flowed out of prime money-market funds since August, a central bank official said.
JPMorgan Chase & Co. will run the five special units that will buy certificates of deposit, bank notes and commercial paper with a remaining maturity of 90 days or less. The Fed will lend up to $540 billion to the five funds, an official told reporters on a conference call on condition of anonymity.
The new effort is called the Money Market Investor Funding Facility, the Fed said. Each unit will buy paper from up to 10 separate issuers.
"In terms of the redemptions money-market funds are seeing, and hedge funds as well, any of these moves by the Fed are going to help,'' Mike Holland, chairman and founder of Holland & Co. LLC in New York, said in an interview with Bloomberg Television. He predicted redemptions will ease.