The Federal Reserve has warned U.S. money market funds to cut their investments in Europe, a top official says.
“The Fed and regulators have tried to stress to money market funds to reduce their exposure to European financial institutions,” Charles Plosser, the president of the Reserve Bank of Philadelphia, told the Wall Street Journal.
Investors probably expect that their fixed-income money managers exited highly risky European banks some time ago. Nevertheless, the fact that the Fed would be advising funds to get out highlights how nervous and uncertain the U.S. central bank remains about Europe’s debt crisis.
The U.S. financial sector has been trying to insulate itself from the fallout of a break up of the euro zone, or other crisis-driven event, Mr. Plosser told the Journal’s Brian Blackstone.
The Fed official acknowledged that an implosion in Europe could lead to another global credit crunch. But he added that he thinks a more likely scenario will be capital pouring into the U.S. in search of safety.