"The commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak," the Fed said in a statement, adding the CPFF program will be established by the central bank, with the approval of the Treasury Secretary, to ensure the smooth functioning of the commercial paper market.
"The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers," U.S. Treasury Secretary Steven Mnuchin said in a separate statement.
"This will support the smooth functioning of the financial markets and Treasury will provide $10 billion of capital to the CPFF from the Exchange Stabilization Fund," Mnuchin said.
Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies, according to the Fed.
The latest move came after the Fed on Sunday cut its benchmark interest rate by a full percentage point to near zero and pledged to increase its bond holdings by at least 700 billion U.S. dollars amid mounting fears over the coronavirus outbreak.
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