As expected, the Federal Reserve's FOMC cut interest rates by a quarter percent to a range of 4.0-4.25%, which means that money market fund yields will decline by a similar amount over the coming month. Our Crane 100 Money Fund Index, an average of the 100 largest money funds, should fall from its current 4.09% to below 4.0% next week and to around 3.85% as we move into October. (Money funds have a WAM, or weighted average maturity of 41 days currently, so they should take this long to reflect the full Fed move.) A post titled, "Federal Reserve issues FOMC statement," explains, "Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen." (Note: Safe travels to those of you headed to our European Money Fund Symposium next week in Dublin (Sept. 22-23)! We look forward to seeing you there!)
It states, "In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4 1/4 percent. In considering additional 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 will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."
The FOMC states, "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."
They add, "Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting."
In other news, the ICI recently released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. It tells us, "The Investment Company Institute (ICI) reports that, as of the final Friday in August, prime money market funds held 47.2 percent of their portfolios in daily liquid assets and 61.5 percent in weekly liquid assets, while government money market funds held 76.5 percent of their portfolios in daily liquid assets and 87.6 percent in weekly liquid assets." Prime DLA was down from 45.8% in July, and Prime WLA was up from 61.3%. Govt MMFs' DLA rose from 75.1% and Govt WLA increased from 86.5% for the previous month.
ICI explains, "At the end of August, prime funds had a weighted average maturity (WAM) of 31 days and a weighted average life (WAL) of 51 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 44 days and a WAL of 95 days." Prime WAMs and WALs were 2 days and 1 day longer from the previous month. Govt WAMs and WALs were 3 days longer and the same from the previous month.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas rose from $634.93 billion in July to $671.02 billion in August. Government money market funds' holdings attributable to the Americas rose from $5,241.18 billion in July to $5,391.69 billion in August."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $671 billion, or 56.5%; Asia and Pacific at $185 billion, or 15.6%; Europe at $304.8 billion, or 25.7%; and, Other (including Supranational) at $26.9 billion, or 2.4%. The Government Money Market Funds by Region of Issuer table shows Americas at $5.392 trillion, or 90.8%; Asia and Pacific at $141.1 or 2.4%; Europe at $389.7 billion, 6.6%, and Other (Including Supranational) at $12.8 billion, or 0.2%.
Finally, the U.S. Treasury's Office of Financial Research published a paper titled, "OFR's MMF Monitor Shows Shift to Cleared Repo Lending <i:https://www.financialresearch.gov/the-ofr-blog/2025/09/11/mmf-monitor-cleared-repo-lending/>`_." It tells us, "The record amount of cash parked in MMFs reflects their competitive yields and perceived safety and liquidity. Investors' ability to redeem MMF shares and access cash on the same or next business day is an advantage over other cash management options. Regulation limits the average maturity of MMF portfolios to ensure that funds can provide quick access to cash. As a result, the level of MMF assets can signal shifting investor sentiment regarding risk and the respective impact on available funding in short-term funding markets."
They write, "MMFs increased their overall repurchase agreement (repo) allocation to over $3 trillion (41% of assets). The increase in repo usage coincides with a decline of $267 billion in U.S. Treasury securities holdings. One reason for the decline was that net U.S. Treasury bill issuance itself declined by $372 billion, as the U.S. statutory debt ceiling was binding during the quarter."
The OFR says, "MMFs have more investments in repo, driven by a combination of factors: higher rates on private repo relative to the Federal Reserve's ON RRP offer rate, reduced supply of high-quality assets like U.S. Treasury bills, and increased cash that needed to be deployed into liquid investments. MMFs increased their private (non-RRP) repo outstanding by $243 billion to a record high of $2.7 trillion, making these investments nearly a fourth of the estimated $12 trillion U.S. repo market."
The piece continues, "SEC Form N-MFP data also show that funds have a growing reliance on a handful of counterparties for their repo transactions. One of their largest exposures is to the Fixed Income Clearing Corporation (FICC) <b:>`_that many funds use to clear their repo.... MMFs, like most non-bank institutions, are not direct members of FICC. `To access FICC's clearing services for repo trades, they use the central clearinghouse's sponsored repo program. In this arrangement, a clearinghouse member 'sponsors' an MMF's access to FICC's clearing services by fulfilling certain requirements. FICC then becomes the legal counterparty to both the sponsoring member and the MMF."
Finally, it adds, "While FICC becomes the counterparty, the MMF still has indirect exposure to the sponsoring dealer. The sponsor typically guarantees performance of its sponsored members and contributes margin and clearing fund requirements to FICC on their behalf. If the sponsor fails to perform, FICC may terminate the sponsoring arrangement. The MMF could then lose access to the clearing platform and would have to change its repo counterparty allocation. Only a handful of large clearing members are significant sponsors.... These clearing members also engage in non-cleared repo transactions with MMFs, which creates a multifaceted relationship between MMFs and large dealers."
