Wells Fargo's December Overview
Wells Fargo's December Portfolio Manager Commentary says, "With proposed amendments to Rule 2a-7 mandating that money funds keep certain amounts in overnight investments, we would not be surprised if this supply problem were more acute next year should the Rule be amended as proposed.... Because statements released after the last several Federal Open Market Committee meetings indicate that money market rates will remain low for 'an extended period,' we would expect this rate environment to persist into 2010. The question is how long into 2010? Other central banks are already beginning to raise their rates and the U.S. economy shows some promise of recovery. Looking at the federal funds futures market as one indicator, activity in that market would indicate a better-than-ever chance that the federal funds rate will be hiked to 50 bps by mid-year, and to 1.00% by the end of 2010. Some economists are predicting an even more aggressive pattern of tightening by the Fed. Clearly, the risks of rising rates outweigh the near impossibility of further declines, since we are at or near zero already. Since the timing of changes in the direction of interest rates is always quite unpredictable, the prudent course is to plan for that event now."
