MMF Assets Rebound; Yellen
Money market fund assets rose in the latest week, snapping a three-week slide, according to ICI's latest "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets increased by $13.96 billion to $2.66 trillion for the week ended Wednesday, September 23, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $5.36 billion and prime funds increased by $10.66 billion. Tax-exempt money market funds decreased by $2.05 billion. Assets of retail money market funds decreased by $1.65 billion to $897.19 billion. Among retail funds, Treasury money market fund assets increased by $230 million to $205.23 billion, prime money market fund assets decreased by $570 million to $512.91 billion, and tax-exempt fund assets decreased by $1.30 billion to $179.05 billion. Assets of institutional money market funds increased by $15.61 billion to $1.76 trillion. Among institutional funds, Treasury money market fund assets increased by $5.13 billion to $768.13 billion, prime money market fund assets increased by $11.23 billion to $928.73 billion, and tax-exempt fund assets decreased by $750 million to $66.30 billion." Year-to-date, money fund assets are down $73 billion, or 2.7%. Month-to-date in September (since 9/3), MMF assets are down $18 billion. In other news, Fed Chair Yellen said in a speech on "Inflation" yesterday, "By itself, the precise timing of the first increase in our target for the federal funds rate should have only minor implications for financial conditions and the general economy. What matters for overall financial conditions is the entire trajectory of short-term interest rates that is anticipated by markets and the public. As I noted, most of my colleagues and I anticipate that economic conditions are likely to warrant raising short-term interest rates at a quite gradual pace over the next few years. It's important to emphasize, however, that both the timing of the first rate increase and any subsequent adjustments to our federal funds rate target will depend on how developments in the economy influence the Committee's outlook for progress toward maximum employment and 2 percent inflation.... Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent? The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly.... In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability. For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data."
