The Federal Reserve may subsidize U.S. companies by buying their short-term debt at rates below those demanded by private investors in the $1.6 trillion commercial-paper market. Fed officials yesterday set the yield they will pay for commercial paper at about 1.1 percentage points less than the average cost for financial companies, weekly central bank data show. Policy makers last week announced emergency plans to buy the securities after the market shrank to a three-year low. The discount cuts the cost of cash to 2.1 percent from 3.85 percent for General Electric Co.'s financing arm and from 4.6 percent for Citigroup Inc., data compiled by Bloomberg show. One possible unintended consequence: private buyers are shut out. ``The Fed can drive everybody else out of the market'' for buying commercial paper unless market yields drop, said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors Inc. in Vineland, New Jersey, who used to work at the Atlanta Fed. That could end up ``assuring that markets won't restart,'' he said.
Fed officials yesterday set the yield they will pay for commercial paper at about 1.1 percentage points less than the average cost for financial companies, weekly central bank data show. Policy makers last week announced emergency plans to buy the securities after the market shrank to a three-year low.
The discount cuts the cost of cash to 2.1 percent from 3.85 percent for General Electric Co.'s financing arm and from 4.6 percent for Citigroup Inc., data compiled by Bloomberg show. One possible unintended consequence: private buyers are shut out.
``The Fed can drive everybody else out of the market'' for buying commercial paper unless market yields drop, said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors Inc. in Vineland, New Jersey, who used to work at the Atlanta Fed. That could end up ``assuring that markets won't restart,'' he said.
