NY Times on Money Market Funds
The New York Times writes a big piece on money market funds in "How Inflation May Change Where You Put Your Cash." Columnist Jeff Sommer says, "The stock market hasn't provided much joy, bonds have been a source of considerable pain and inflation is troubling. But at last there is a glimmer of good news for people who need a place to park their cash: Money market mutual funds are finally beginning to pay a little interest. These funds are a convenient place for both individual investors and big institutions to keep money temporarily. Their yields have been very low for years, and since the crisis of March 2020 they had hovered near zero, paying investors virtually nothing." He continues, "But now that the Federal Reserve has begun to increase the short-term interest rates it controls directly, money market fund yields that are available to consumers have also started to rise -- and they will continue their climb as long as the Fed continues to increase short-term rates." The Times quotes T. Rowe Price's Doug Spratley, "You can expect money market rates to keep rising for a while. And they will be rising fairly rapidly." But the piece explains, "Don't get too excited just yet. `This isn't a return to the early 1980s, when money market rates soared above 15 percent, along with the rate of inflation. The yield on the average big money market fund is still only about 0.6 percent, said Peter G. Crane, the president of Crane Data of Westborough, Mass., which monitors money market funds. 'Yields are moving in the right direction,' Mr. Crane said. 'But that's still not much, especially when you factor in inflation.'" The article adds, "Money market yields won't stay where they are for very long. On Wednesday, the Federal Reserve is expected to raise rates again, and money market rates should follow, with a lag of about one month. As a practical matter, in the current unsettled markets, many people need good places to keep their short-term cash. In the past, I noted that several options -- like bank accounts and Treasury bills -- seemed reasonable. Now I would add money market funds to that list, with some qualifications. Be aware that, yields aside, money market funds ran into some safety problems in the last two financial crises. Since then, they have been subjected to tighter regulatory scrutiny and to a series of reforms. Many funds now hold only U.S. government securities, and all are required to hold only high-quality debt instruments. All are intended to avoid fluctuations in value, though they have come under strain before and could well do so again. In any case, money market funds are safer than bond or stock mutual funds or exchange-traded funds."
