As the market expects that Federal Reserve policymakers are not in a hurry to ease monetary policy, US money market fund assets have risen to a record level. According to data from the Investment Company Institute of the United States, about $28 billion flowed into US money market funds in the week ending June 12. Total assets increased to $6.12 trillion from $6.09 trillion in the previous week, exceeding the record high set in April.
Deborah Cunningham, chief investment officer of global liquidity markets at Federated Hermes, believes that the size of assets is likely to expand further to $7 trillion.
“There will not be a large amount of cash exiting the market and flowing into riskier products,” Cunningham said. “Cash will continue to flow in, just from different sources.”
Retail investors have flocked to money market funds since the Federal Reserve began one of the most aggressive tightening cycles in decades in 2022. At the same time, once the Fed starts cutting interest rates, financial institutions may put more cash into money market funds as companies outsource cash management to gain returns.
Federal Reserve officials on Wednesday predicted only one rate cut this year, compared with three forecasts in March.
Chairman Powell said the Fed needs to continue to see evidence that inflation is slowing toward its 2% target. The Fed has kept its benchmark interest rate in a target range of 5.25% to 5.5% since July last year.
In the week ending June 12, assets of government funds, which invest primarily in securities such as Treasury bills, repurchase agreements and agency debt, increased by $25.14 billion to $4.946 trillion. Assets of prime funds, which invest primarily in risky assets such as commercial paper, increased by $4.92 billion to $1.046 trillion.
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