Fed to Buy Unsecured Debt of Companies
WASHINGTON -- In another effort to increase the flow of credit, the Federal Reserve announced today that it will purchase short-term debt.
The Fed is creating a fund, called the commercial paper lending facility, to buy unsecured short-term debt that companies use to finance some of their operations.
"By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper,'' the central bank said in a statement.
This is the latest in a series of moves by the government to jumpstart the economy and get additional money flowing through the economy so businesses can have the funds to make payroll, replenish their inventory and fund capital expenditures.