Money Market Funds: Fed to the Rescue

In the latest move to unclog the credit markets, the Fed said today that it's providing help for money market funds. (That's on top of the Treasury's guarantee to insure money market funds that pay a fee.)

Money market funds have been strained by investors cashing out and moving their money into government IOUs, which pay less but guarantee safety. The funds have had a tough time selling assets to satisfy redemption requests from investors, the Fed said in a statement. About $500 billion has flowed out of prime money market funds since August, according to Bloomberg.

To help money market funds meet redemptions, the Fed is setting up the Money Market Investor Funding Facility, which will be made up of five units run by JPMorgan Chase & Co. These units will buy money market instruments (such as certificates of deposit and bank notes) held by money market funds. By facilitating the sales of these instruments in the secondary market, the MMIFF "should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments," the Fed said. In other words, don't lose confidence in money market funds.

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