Recent "Minutes of the Meeting of the Treasury Borrowing Advisory Committee April 29, 2025" comment on stablecoins and money market funds," saying, "With the growth of the cryptocurrency and digital asset economy has come the expansion of the 'stablecoin' market in the United States and abroad. As this asset class continues to grow, the distinctions between money funds and payment stablecoins has continued to converge. Some stablecoins are moving towards paying interest, money market funds are exploring tokenization, and Congress is considering explicitly defining what constitutes a collateralized dollar-backed payment stablecoin. Please articulate the terminal effects of interest-bearing stablecoins from a perspective of Treasury demand, USD hegemony, the expansion of dollar-backed payment stablecoins, and potential effects for insured depository institutions. Further, do tokenized money funds present a risk should they be allowed to compete with other payment or settlement instruments?"
A press release titled, "Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee <i:https://home.treasury.gov/news/press-releases/sb0121>," tells us, "`The second charge focused on stablecoins and their intersection with the US Treasury market. The current market cap of stablecoins is around $234bn, with roughly half of that currently reported as invested in T-bills, with another $90bn in money market funds. The Committee noted that evolving market dynamics and proposed legislation have caused some estimates of the growth trajectory of stablecoins to reach ~$2tn in market cap by 2028."
It says, "The Committee discussed the potential impact to US Treasury demand. Legislation design is likely to determine both scale of growth in the industry and sources of inflows (e.g., unbanked users, reallocations from money market funds, or reallocations from bank deposits). Growth in stablecoins from unbanked market segments would be positive for T-bill demand, while growth at the expense of money market funds would likely be neutral. Committee members worry that growth at the expense of bank deposits could impact credit creation and the existing demand profile for US Treasury securities from the banking sector."
Treasury adds, "Additionally, the question of interest-bearing stablecoins warrants careful consideration. Current draft legislation precludes stablecoins from paying interest. The Committee expressed concerns about interest-bearing stablecoins and felt that further study was warranted, as was further regulatory environment design."
In other news, Federated Hermes Deborah Cunningham says, "Let Powell drive the bus" in her latest commentary. She comments, "No one likes backseat drivers, but if they lunge for the steering wheel, you can't ignore them. That's the position that President Trump has repeatedly put Federal Reserve Chair Jerome Powell in when he attacks him for refusing to cut interest rates. Presidents occasionally chirp about Fed policy, but Trump's tweets go well beyond that."
Cunningham writes, "Perhaps because cash managers deal in securities that don't know the meaning of VIX, we do our best to ignore Trump. And maybe everyone should. But the problem is not that administration lawyers might find a legal loophole to remove Powell, usurp Fed independence with a 'shadow chair' or do something more drastic. Those alternatives would take the sort of energy, expertise and political equity the administration might not have for something most voters don't prioritize. It's that Powell's term as chair is set to expire in May 2026, which means he will essentially be a lame duck in a few quarters, and Trump's assault could accelerate that timeline when we need strong leadership."
She continues, "And though Trump might want to hand-pick his successor, the nominee must come from the group of standing Fed governors. That could mean the new chair might not hold wildly different opinions, as Powell has shown a commanding influence on the Fed board and FOMC over the years. He's been challenged more in the last few quarters, with some dissention, but it seems they largely support his view of economics."
The piece states, "So, cue the debate that likely will ensue at the FOMC meeting next week. It would not be surprising if Powell and most of the voting members push back against the fed funds futures call for as many as four quarter-point cuts over the rest of 2025. A cut is extremely unlikely, but expect guidance about how the tariffs could exacerbate the stickiness of inflation and more clarity on the hard/soft data dichotomy. Can policymakers continue to dismiss the nosedive in consumer sentiment? Will they downplay GDP's first-quarter contraction?"
It adds, "The bond market also seems to be in favor of that 100 basis points of easing, teaming up with traders and Trump to bully Powell. But then again, might bond vigilantes instead focus on the potentially inflationary tariffs? Isn't that the reason for the 90-day delay? All the uncertainty is the main reason we are of the opinion that three rate cuts in the second half of this year are in order."
Cunningham asks, "Where does this put the money markets? Yields might decline faster than they might have absent the current proposed tariffs. But we expect they will remain relatively attractive. We also anticipate continued growth of assets under management. Stocks are acting like the worst is behind us, but the White House is sure to smack them again, potentially pushing investor assets to the relative safety of liquidity vehicles. Money market fund assets across the industry continue to hit record highs and value can be found, especially in the longer end of the liquidity yield curve. In a complex time like this, we'd like to think that investors also appreciate active management driving their portfolios."
