Reuters: Wall of Cash Staying Put
Reuters writes on "The Peculiar 'No Show' from US Cash Funds." The article states, "A flood of money was expected to cascade from U.S. cash funds to riskier assets as interest rates began to tumble. But so far, this flood has been missing in action, raising the question of whether this is a sign of extreme caution, plain inertia or something else. The brimming bunkers of cash held by U.S. households and companies have never been higher, inflated by monetary and fiscal responses to the pandemic shock and then cosseted by rising interest rates." It continues, "It was presumed that tempting this cash back into bonds and stocks would only require an initial Federal Reserve interest rate cut, with the promise of an extended easing cycle and plain sailing ahead for the economy. Both scenarios seem to be materializing, and yet cash coffers are still swelling. Assets under management at cash-like U.S. money market funds -- which are invested mostly in short-term government bills with maturities of less than a year -- topped $6.5 trillion for the first time this month. That's some $200 billion higher than just before the Fed's 50 basis point rate cut last month, almost $1 trillion higher than this time last year, and twice the pre-pandemic level five years ago." Reuters adds, "Of course, the ongoing expansion of money fund assets over the past 18 months is partly just reinvestment, as these funds have enjoyed the heftiest returns in almost 20 years, as well as a whoosh of inflows from checkable deposits following the Silicon Valley Bank bust in the spring of 2023. That said, signs remain scant that these cautious savers will be chasing riskier returns any time soon. And what's the rush? The returns offered by these funds are still attractive, especially if you're wary of any economic or political disturbances ahead.... Perhaps many of these money fund investors simply aren't as interest rate sensitive as many previously believed."
