Bloomberg Looks at Negative Rates
Bloomberg writes "The Fed Doesn't Want Negative Interest Rates Even Though Trump Does," which briefly mentions money market funds. The article says, "Federal Reserve Chairman Jerome Powell and his colleagues are loath to follow Europe and Japan into negative interest rate territory -- no matter what President Donald Trump might want or how bad the U.S. economy might get. Not only could such a move be deemed illegal, it's also unclear how much of an economic gain it would yield given the likely disruption it could cause to banks and money market funds." It explains, "Money-market funds would also be squeezed by negative rates, though reforms unveiled by the Securities and Exchange Commission in 2014 mean that some are less vulnerable than they were before. If rates fall below zero, the funds' first line of defense against investors yanking out their money would be to reduce the fees that the managers charge." Bloomberg quotes Peter Crane, president of Crane Data, "If rates don't go too far negative, the playbook says suck it up and survive on lower fees.... If you go too negative like you see in Europe, then you need another plan." The piece adds, "The Fed is in the midst of a wide-ranging strategic study of ways it can tackle what Powell has called the 'key question' facing it: How can it best manage the ups and downs of the economy in a world of permanently lower interest rates. But negative rates don't seem to be high on the agenda." In other news, website AssetTV features a video from MetLife, which discusses, "Stable Value in Target Date Funds." MetLife National Sales Director for Stable Value Markets Warren Howe, says, "It's very interesting because if you look at stable value now, it's about $820 billion or so ... that we see for the size of the asset class. And, if you went back 10-15 years, stable value got the predominant amount of default investments, if you will." Howe continues, "But, then target dates have come along and over a 10 year period they've gone from virtually zero to somewhere north of a trillion dollars. They have grown dramatically.... Because they're mutual funds, stable value has not been a component of that."
