Fidelity on Fed's Hawkish Path
Fidelity Investments' latest "Money Markets" update, entitled, "The Fed Stays On Its Fairly Hawkish Path," tells us, "Fidelity's money market funds are well-positioned for higher rates. We believe policy interest rates will continue to trend higher. The September FOMC meeting largely confirmed the Fed's expectations for three more rate hikes in 2018, in addition to the quarter-point hike expected at yearend 2017. This likely will continue the trend of higher rates that began 21 months ago. While the Fed slightly reduced its long-run rate outlook at its September meeting, removing nearly one full quarter-point rate hike from its long-term projection, this slightly dimmer view may not matter very much, given the number of Fed board governors set to be replaced in the coming months. The steady increase in market rates is driving liquidity into both money market and ultrashort bond funds. While government money market funds have yet to return to their prior peak after a sluggish first half, prime money market funds have grown by $66 billion year-to-date and may continue to benefit as corporate treasurers further segment liquidity. Any tax repatriation may also benefit the funds, as treasurers seek enhanced diversification and relatively higher rates versus bank-administered deposits.... Fidelity's money market funds are positioned with short weighted-average maturities. Thus, we believe the funds are well-positioned in a market that has exhibited higher yields and fairly stable spreads ... and are prepared for higher rates."
