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The Federal Reserve is launching a special fund to keep credit flowing in the short-term commercial paper market that many companies use to raise cash for day-to-day operations. (Commercial paper generally matures in fewer than 270 days.) Starting today the Fed will buy commercial paper, reviving the Commercial Paper Funding Facility the used during the Great Recession to support the credit markets. The Fed wound up buying $350 billion in commercial paper, or about 20% of the market, during the run of the program. The Fed didn’t suffer losses in that program because companies either repaid their loans or the central bank sold the loans back into the market. The Treasury has authorized a $10 billion backstop to make up for any losses at the Fed.

In recent days the commercial paper market has nearly frozen as buyers have pulled back from the market in an effort to limit their own risk in a rush to safety.

With the Fed continuing to move to provide liquidity and Congress and the White House beginning talks over a big new stimulus package of as much as $850 billion, stocks have rallied today. At 12:30 p.m. New York time, the Standard & Poor’s 500 was up 5.0% and the Dow Jones Industrial Average was ahead 3.84%. The NASDAQ Composite had gained 5.33% and the Russell 2000 small cap index was higher by 6.02%.