As the Federal Reserve begins to ease its extraordinary stimulus plan and works to stave off inflation, it is reportedly considering borrowing up to $500 billion from the $3.4 trillion money market fund industry rather than the 20 leading primary dealers, which aren’t expected to be able to provide more than $100 billion, the Financial Times reports.

However, the Fed is not expected to bring liquidity down to where it was before the crisis because it will also raise interest rates. The Fed will borrow the money through reverse repos on the mortgage-backed securities it acquired at the beginning of the financial crisis.

The Fed is reportedly considering a pilot test drive but is afraid that news of such an action will stoke fears that liquidity will be reduced significantly. Last Wednesday, the Fed said it would keep interest rates near zero, a signal that if the Fed is considering liquidity measures, no actions are likely to be taken in the near term.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.