Money market funds have faced severe redemption pressures as the financial crisis deepened last month, but have struggled to find buyers willing to pay full value for the assets since funds are selling at the same time. This has left them wary of investing any cash they have, making it difficult for companies and banks trying to raise funds in the commercial paper market.
The Fed move highlights the extent to which policymakers are concerned about US money markets, even as conditions have improved, with funding rates dropping. Policymakers were worried aggressive moves to prop up US banks may have undermined money funds, which compete with bank savings accounts.
“The short-term debt markets have been under considerable stress in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs,” the Fed said.