Assets of money market funds rose by $27.3 billion over the past week to a record high $7.821 trillion (as of 10/28), according to Crane Data's Money Fund Intelligence Daily. MMF assets broke above the $7.8 trillion level for the first time ever on October 27. Month-to-date in October (through 10/28), MMF assets have increased $113.1 billion, after increasing by $105.2 trillion in September, $132.0 billion in August and $63.7 billion in July. They rose $6.7 billion in June and $100.9 billion in May, but decreased $24.4 billion in April. Assets increased by $2.8 billion in March, $94.2 billion in February, $52.8 billion in January, $110.9 billion in December, $200.5 billion in November, and $97.5 billion last October.
Also, as expected, the Federal Reserve's FOMC cut interest rates by a quarter percent to a range of 3.75-4.0%, 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 3.93% starting next week. (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, "Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year 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 rose in recent months."
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 3-3/4 to 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 decided to conclude the reduction of its aggregate securities holdings on December 1. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."
The FOMC writes, "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; 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, and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting."
In other news, Raymond James reported earnings recently, and mentioned sweep accounts several times on their latest earnings call. CFO Jonathan Oorlog states, "Clients' domestic cash sweep and enhanced savings program balances ended the quarter at $56.4 billion, up 2% over the preceding quarter and representing 3.7% of domestic PCG client assets. Balances increased $2.2 billion or 4% in the month of September, growing nicely after fee billings had resulted in anticipated decreases earlier in the quarter. Based on October activity to date, domestic cash sweep and enhanced savings program balances have declined as anticipated given October's record quarterly fee billings of approximately $1.8 billion."
He continues, "Combined net interest income and RJBDP fees from third-party banks was $653 million, down slightly from the prior quarter. Net interest margin in the Bank segment decreased 3 basis points to 2.71% for the quarter. The average yield on RJBDP balances with third-party banks decreased 5 basis points to 2.91%, in part due to the impact of the September Fed interest rate cut."
Oorlog says, "Based on current interest rates, including the full quarter impact of the September rate cut, in quarter end balances net of the $1.8 billion fiscal first quarter fee billings, we would expect the aggregate of NII and RJBDP third-party fees in the first quarter to be approximately flat with the fourth quarter level. This is largely the result of the positive impact of a higher interest earning asset balance as of the September starting point offsetting the full quarter impact of the September Fed rate action. Keep in mind, there are many variables which could influence actual results, including any interest rate actions during the upcoming quarter and factors affecting our balance sheet, including changes in our loan and deposit balances."
Finally, during the Q&A, they were asked about "bring[ing] some of the third-party sweep deposits back on to balance sheet." CEO Paul Shoukry responds, "We have plenty of capacity with third-party banks, so we'll be able to bring that on-balance sheet to fund growth. We also can continue, to a certain extent, running down some of the securities portfolio. And then we have a very diversified funding apparatus where we can gather deposits both that to -- the Private Client Group, Raymond James Bank and TriState Capital Bank have very substantial treasury management capabilities and depository capabilities to diversify our funding sources. So we have ample funding capabilities and are staying ready to support continued growth going forward."
