Federated Says Cash Rates to Rise
Today our Link of the Day features Federated Investors' latest "Month in Cash." Deborah Cunningham, Money Markets CIO writes about "Unknowns at the Fed. She says, "Recent headlines about the Federal Reserve describe a central bank with little drama and much consensus. It's a near certainty it will raise rates at its next policy meeting ending on Dec. 13. And most think the economic philosophy of the soon-to-be confirmed new chair, Jerome Powell, toes the line with that of the departing Janet Yellen. He agrees with her outlook and has voted with her every time. The narrative, then, is of a smooth transition: The Fed will look and act just like it has in the last few years. As with an economic report, however, you need to look past the headline into the details.... The other uncertainty is how the tapering of the Fed's massive balance sheet will affect the yield curve -- especially, for cash managers, its short end." The piece adds, "The London interbank offered rate (Libor) rose at a good clip in November, so we know that it is possible to maintain normal operations during the taper. I say normal because it is expected that Libor rises ahead of expectations for a Fed rate hike and in anticipation of year-end trading/supply pressure. We've also had pretty good economic news of late, especially the all-important retail sales for this holiday shopping season, and that can push rates higher. One-month Libor rose from 1.24% to 1.35% and 3-month from 1.38% to 1.48%, both approximately 10 basis-point increases. If as expected the FOMC takes rates to a target range of 1.25% to 1.50% at the coming meeting, cash rates on the money market yield curve should continue to rise. So we have slightly shortened the weighted average maturity (WAM) for our government, municipal and prime funds, but they remain in their target ranges of 30-40 days for govies and munis and 40-50 for prime." See also, The Wall Street Journal's "What to Consider Before You Dash Into Cash."
