The Federal Reserve indicated Tuesday that it would purchase short-term commercial paper to help unlock the credit market.
Fort Worth, TX (WiredPRNews.com)—The US Federal Reserve will buy an undetermined amount of short-term debt to help businesses meet their monthly payrolls and equipment purchases.
According to an October 7, 2008 Associated Press article by Jeannine Aversa that appeared on Yahoo.com’s finance page, the Fed is creating new vehicle to purchase 90-day secured and unsecured commercial paper directly from pre-approved companies.
The goal, according to the article, is to create a temporary safety net that makes banks more comfortable in extending credit to businesses. Because of the higher than average number of bank failures this year, the credit market has come to a near standstill. Qualified companies with unsecured debt may be required to pay an upfront fee, according to the article. However, the Federal Reserve did not indicate what this fee might be.
In recent weeks, banks have been reluctant to lend to one another. This has made it much more difficult for businesses to get credit to cover short-term debts, such as payroll and overhead expenses.
While the Fed would not reveal the amount of money that will be used to purchase the short-term debt, the Associated Press article indicated that about $1.3 trillion in debt would qualify. The program, according to the article, will end on April 30, 2009 unless the Fed board decides to extend it.
The article indicated that the Federal Reserve Board might cut interest rates dramatically when they meet in late October.