The Federal Reserve held short-term interest rates steady at 5.25-5.5% Wednesday, issuing the FOMC statement, which says, "Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."
They explain, "In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."
The FOMC adds, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
In other news, Strategic Treasurer recently published a "Liquidity Risk Survey Report," which explains, "Welcome to the 11th Liquidity Risk Survey Report. This research was conducted with over 160 senior treasury professionals around the globe. We started our research on this topic in 2011, and we are encouraged by the continued enthusiasm and interest surrounding this critical area over the years. We are pleased to welcome Allspring Global as the underwriters of this research."
They write, "Managing liquidity has been a critical responsibility for treasurers and investment managers for many decades. The increasing concerns about counterparty risks for deposits and investments are starting to drive more actions on the asset side of the house. On the borrowing side, companies have experienced significant increases in costs over the past few years. This has been coupled with an overall tightening of the debt markets, making borrowing more challenging for many organizations. This leads to increased concerns about liquidity."
The piece explains, "Many treasury leaders want to better understand key aspects of managing their risks around liquidity. What are others doing? What are they focusing on now? Has this been changing over time? What are the drivers of these changes? How are companies improving their monitoring activities or reducing their risks? This research is focused on these topics. We are sharing different aspects of this information via this report, a podcast episode, and a joint webinar. There is a wealth of good information to unpack. Here are a few headlines to get you started, but as you scroll through a few pages, you will find ten key findings and significant additional details."
It states, "Companies Started Using Bank Deposit (DDA, Sweep, MMDA) and Government MMFs in the Past Year for Stashing Short-Term Cash: With interest rates rising over the past year, the investment vehicles with the greatest uptick in use were: (1) Bank Sweeps: 52% (2) Government MMFs: 35% (3) Certificates of Deposits (CDs): 13% of companies overall, 19% of smaller companies."
The survey says, "Safety the Top Priority Overall, but Small Companies Prioritize Liquidity in This Market," explaining, "The priority for most companies overall is safety, liquidity, and yield, in that order (SLY). More than twice as many companies selected safety compared to liquidity. This skew is even more pronounced in larger companies, with three-quarters selecting safety compared to just 19% and 7% respectively placing liquidity and yield first. For smaller companies, on the other hand, liquidity narrowly edged safety out (50% to 47%) for the top category."
Discussing the "Decade-Long Trend of Declining Actions in Monitoring Counterparty Exposures for Bank Deposits," it comments, "In 2013, 60% of companies were reviewing counterparty exposure for bank deposits and CDs. In the intervening years, however, this gradually trended downward. Just 52% track either informally or formally in 2023, and for larger firms, the trend has moved from 76% monitoring in 2013 to 59% in 2023."
They study also cites, "ESG Increases in Importance for 49% of All Respondents, with EMEA and Large Companies Most Heavily Vested." Strategic Treasurer explains, "Forty-five percent have an ESG program in place, and 18% are working to implement one. For EMEA and ROW, 75% indicated an increase in importance over the past year."
They state, "Bank Portals the Most Common Way to Invest in MMFs (63%), Followed by the Use of an Institutional Broker (33%)." It continues, "The third most common way of investing in MMFs was directly through the fund (21%), and the independent portals are used by 13% of respondents. When combining small and medium-sized firms, the independent portals move up a position to third, but the use increases to one in four companies (25%)."
Another result says, "Forty Percent of Companies Have No Policy on Investment Limits for Uninsured Bank Deposits," which tells us, "The difference in policy limits by company size is negligible, as 47% of small companies have no formal limit, and 38% of medium and large are also without limits. Thirty-six percent have limits of six million dollars or less." The survey question asks, "What is the maximum dollar value exposure to uninsured bank deposits allowed by your investment policy?" The responses are as follows: Less than $1 million 25%, $1-3 million 8%, $3-6 million 3%, $6-10 million 7%, Greater than $10 million 17%, and No policy limits 40%.
