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What now for record U.S. money market funds?

Chart of the week
Central banks
Americas
Europa
Fixed Income
Alternative Assets

11/29/2024

Even after the Fed's first rate cut, the momentum of cash inflows remains high  

Picture showing fedreal reserve bank

Holdings of U.S. money market funds have grown strongly over the past two years, breaking record after record.[1] The question has been whether rate cuts by the would bring their rise to a halt. Not so far. Since the Fed’s first interest rate cut in September, the amount invested in these funds has risen by a further $40 billion to $6.65 trillion.[2] Depending on the source, some reports even put the figure above $7 trillion.[3] Although there was a slight setback last week according to the data provider ICI,[4] we do not believe there is any reason to expect any major change and a wave of withdrawals from money market funds in the near future. Investors still seem to be comfortable with these short-term investments, especially as the Fed has recently scaled back expectations of rate cuts this year and next.

In our CIO Special[5] from May 21,2024, we had already suggested that rapid outflows were unlikely. However, we have to admit that we did not anticipate the further rise in inflows that we have seen recently. Since Donald Trump's victory in the U.S. presidential election at the beginning of November, the question marks surrounding U.S. political developments and market reactions have not diminished. As a result, we do not expect any major changes to the status quo for U.S. money market funds in the short term. The conclusions of our Special therefore remain valid. In our view, U.S. money market funds remain an attractive haven for investors in times of nervous markets.

Trading blows

Trade conflicts are likely to prove a defining feature of the next Trump presidency

Banner Image showing trading lines

U.S. money market funds (still) defy the Fed's first rate cuts

 

Chart

Line chart with 2 lines.
U.S. dollar trillion 
The chart has 1 X axis displaying

. Data ranges from 2021-01-06 00:00:00 to 2024-11-20 00:00:00.
The chart has 2 Y axes displaying values, and values.
%
End of interactive chart.

*upper bound

Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 11/26/24

 

 

1

Bloomberg Finance L.P., DWS Investment GmbH as of 11/26/24

2

Bloomberg Finance L.P., DWS Investment GmbH as of  11/26/24

3

America's $7 trillion cash stash isn't going anywhere, Reuters as of 11/22/24

4

Money Market Fund Assets, Investment Company Institute as of 11/21/24

5

U.S. money market funds - a safe haven? (dws.com)

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