Fed Gets Busy, but Dow Plummets Again

The Federal Reserve Board and its chairman grabbed the spotlight on October 7, with the Fed announcing in the morning a plan under which it would buy three-month unsecured and asset-backed commercial paper “directly from eligible issuers.” It will do so by creating a Commercial Paper Funding Facility (CPFF) that it said will provide a “liquidity backstop” to U.S. issuers of CP through a special purpose vehicle (SPV). In a considerable understatement, in its announcement the Fed indicated it was making the move since the CP market has been “under considerable strain in recent weeks,” and hoped that the CPFF will eliminate “much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations,” thus encouraging “investors to once again engage in term lending in the commercial paper market.”

In an afternoon speech to the National Association for Business Economics, Fed Chairman Ben Bernanke said the Fed will “need to consider” whether its policy since June of keeping interest rates stable “remains appropriate” in the face of the current economic crisis. “The outlook for economic growth has worsened,” Bernanke said in his prepared remarks.