Fed Cuts Costing Says Post's Sloan
The Washington Post features a column by Allan Sloan entitled, "The Fed interest rate cuts are costing money fund investors billions a year," which is subtitled, "Money fund yields have fallen more than 90 percent since the Fed began cutting short-term rates to near zero to help stimulate the economy after the coronavirus struck." It asks, "Would you believe that the Federal Reserve's interest rate cuts are costing money market mutual fund investors more than $60 billion a year of income? Well, you should believe it, because it's true. Using numbers from money fund specialist Crane Data, I estimate that in the past four months, the Fed's rate cuts have reduced money fund dividends by almost $64 billion a year from what they were at the end of February. That's because money fund yields have fallen more than 90 percent since the beginning of March, when the Fed began cutting already-low short-term rates to near zero to help stimulate the economy." The column quotes Crane Data President Peter Crane, "Never have so many gotten so little on so much money." It continues, "I want to show you how the Fed's cuts in short-term rates, part of a multi-trillion-dollar attempt to keep the U.S. economy from imploding because of the coronavirus, is clobbering people looking for a safe place to keep their money.... But what's best for most people isn't best for all people. And the reason I'm taking you through this math is to show how much impact ultralow interest rates can have on people of modest means who need income from their savings to live on." Sloan explains, "I worked out a way to estimate those numbers in several conversations with Peter Crane. According to Crane, the average yield on the Crane 100 -- 100 major money funds that have about 75 percent of all money fund assets -- was 1.41 percent as of Feb. 29. As of June 30, the average yield was down to 0.11 percent. That drop to 0.11 percent from 1.41 percent is the 90 percent yield reduction that I talked about earlier. As of June 30, the most recent date for which Crane has statistics, money fund assets totaled about $4.9 trillion. Apply the 1.3 percent difference between the Feb. 29 yield and the June 30 yield to $4.9 trillion and you get a $63.7 billion drop." The piece adds, "Crane says managers of more than half the money funds in its universe have reduced their fees to make sure that returns on their funds don't turn negative.... I expect more money fund managers to cut their fees and for yields to keep drifting down as higher-yielding securities funds bought a while ago mature and are replaced by lower-yielding securities. In the last cycle, kicked off by the 2008-09 financial meltdown, the Crane 100 yield bottomed out at 0.02 percent. Don't be surprised if yields get that close to zero this time around, too."
