Fed sets new loan program designed to ease turmoil in money markets


Just a half hour before midnight Wednesday, the Federal Reserve announced further steps to try to stabilize U.S. financial markets rocked by the sudden pullback of economic activity stemming from the deadly coronavirus outbreak.

In a statement, the Fed broadened its support to include money market mutual funds.

The central bank’s board of governors approved a new Money Market Mutual Fund Liquidity Facility, or MMLF, to assist money market funds in meeting demands for redemptions by households and other investors.

Ward McCarthy, an economist at Jefferies, said the Fed was facing a problem in that cascading investor redemptions from mutual funds and ETFs were causing “fire sale” pricing in fixed-income markets. There has also been substantial price dislocation in credit markets due to these cascading redemptions, he added in a note.

The Fed said the MMLF program would support the flow of credit to households and businesses.

Under the facility, the Boston Fed will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from…

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