A whopping $7 trillion is sitting idle in money market funds, a new record high. This massive amount of cash reflects investor hesitation to invest in riskier assets.
Why the Cash Pile-Up?
Investors started moving their money into money market funds in 2022 when the Federal Reserve aggressively hiked interest rates. These funds offer lower-risk, short-term investments like US Treasury bonds, and the rate hikes made them more attractive. Even though the Fed is now lowering rates, the money keeps flowing into these safe havens.
A Cautious Market
Experts note that this cautious approach is unusual. Typically, we’d see money flowing back into riskier investments after rate cuts. However, current market conditions are anything but “normal.” Treasury yields have been lower than the Fed’s interest rate for two years, further encouraging investors to stick with the safety of money market funds.
When Will the Money Move?
According to Bank of America strategists, history suggests outflows from money market funds typically begin about a year after the first rate cut. Based on that timeline, we might not see a significant shift until September of next year.
Disclaimer: This information is for general knowledge and shouldn’t be considered investment advice. Always do your own research before making any investment decisions.
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