Fed jumbo rate cut puts pressure on money market fund investors

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Sept 20 - Investment advisers are urging clients to dump hefty cash allocations now that the Federal Reserve has begun its much-anticipated interest-rate easing, a process they expect to limit the appeal of money-market funds in the coming months.

On Wednesday, the U.S. central bank cut the federal funds rate by a larger-than-usual 50 basis points to a range of 4.75% to 5%, which makes holding cash in deposit accounts and cash-like instruments less appealing. Shares of Trump Media and Technology Group fell as much as 8% in Friday morning trading after a lockup prohibiting insiders from selling their shares expired."Investors may need to look at something different, or longer-term, to lock in rates and not be as exposed to the Fed lowering interest rates," said Ross Mayfield, investment strategist at Baird Wealth.

It could take a while for initial reactions to the Fed's decision on Wednesday to show up in money-market fund flows, as it has been tough to persuade retail investors to abandon their cash holdings, analysts note. Assets in money market funds tend to peak nine months after the first rate cut, BofA Securities said in a report.

 

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