Fed produces more alphabet soup...

[GRG55]

Fed launches new money market facility

Tue Oct 21, 2008 9:05am EDT
WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday launched a new facility to fund purchases of certificates of deposit and commercial paper from money market mutual funds in the latest step to provide liquidity to strained financial markets.

"By facilitating the sales of money market instruments in the secondary market, the MMIFF (Money Market Investor Funding Facility) 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 a statement.

[kelton56]

Re: Fed produces more alphabet soup...

Fed launches new money market facility

Tue Oct 21, 2008 9:05am EDT
WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday launched a new facility to fund purchases of certificates of deposit and commercial paper from money market mutual funds in the latest step to provide liquidity to strained financial markets.

This new facility is in addition to the Fed's current Asset-Backed Commercial Paper Money Market Fund Liquidity Facility ($123 billion a/o 10/15/2008).

But according to ICI, MMF assets a/o 10/16/2008 have increased to $3.519 trillion, up $120 bn since 09/24, so money is flowing into MMFs, not out, yet this facility is being created to provide "redemption liquidity."

Which must mean one or both of two things: (i)This new facility, up to $600 billion, means MMF shareholders are continuing to shift from general purpose MMFs to Treasury/Agency only MMFs, or (2) it's another conduit to get credit markets lubed again, by having MMFs buy new paper and CDs, which they offload, as necessary, to the Fed.

The Fed's balance sheet already has doubled to $1.8 trillion in a month. Will it be on track to double again by year-end? And if so, what are the inflationary ramifications?