The Federal Reserve raised short-term interest rates for the 6th time this year and hiked by 75 basis points for the fourth time in a row on Wednesday. The Federal funds target rate is now in a range from 3.75% to 4.00%, its highest level since 2008. Money fund yields should surge again next week and easily break over 3.0% on average, and they should approach 3.5% in coming weeks and 4.0% by year end. The Fed's FOMC statement says, "Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.... The Committee is highly attentive to inflation risks."

They explain, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective."

The FOMC Statement adds, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Fed Chair Jerome Powell says in his "Press Conference Opening Statement," "My colleagues and I are strongly committed to bringing inflation back down to our 2 percent goal. We have both the tools that we need and the resolve it will take to restore price stability on behalf of American families and businesses. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all."

He adds, "Today, the FOMC raised our policy interest rate by 75 basis points, and we continue to anticipate that ongoing increases will be appropriate. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent. In addition, we are continuing the process of significantly reducing the size of our balance sheet. Restoring price stability will likely require maintaining a restrictive stance of policy for some time. I will have more to say about today's monetary policy actions after briefly reviewing economic developments."

Money fund assets jumped on Tuesday, the first day of November and Prime MMFs broke above the $1 trillion level for the first time since mid-2020. Crane Data's Money Fund Intelligence Daily shows assets surging by $36.9 billion to $5.091 trillion November 1st. This marks the highest asset total since the first week of 2022. Prime money market funds rose $4.7 billion Tuesday to $1.00 trillion, their highest level since August 2020. `Given that November and December are by far the strongest two months of the year for MMF inflows, we expect this to be the start of something big.

In other news, a press release entitled, "SEC Proposes Enhancements to Open-End Fund Liquidity Framework," tells us, "The Securities and Exchange Commission today voted to propose amendments to better prepare open-end funds for stressed conditions and to mitigate dilution of shareholders' interests. The rule and form amendments would enhance how funds manage their liquidity risks, require mutual funds to implement liquidity management tools, and provide for more timely and detailed reporting of fund information."

SEC Chair Gary Gensler comments, "A defining feature of open-end funds is the ability for shareholders to redeem their shares daily, in both normal times and times of stress. Open-end funds, though, have an underlying structural liquidity mismatch. This can raise issues for investor protection, our capital markets, and the broader economy. We saw such systemic issues during the onset of the COVID-19 pandemic, when many investors sought to redeem their investments from open-end funds. Today's proposal addresses these investor protection and resiliency challenges."

The release continues, "Currently, open-end funds other than money market funds and most exchange-traded funds are required to classify the liquidity of their investments into four categories, ranging from highly liquid to illiquid. The proposal seeks to improve these funds' liquidity classifications by establishing new minimum standards for classification analyses, including some that incorporate stressed conditions, and by updating the liquidity categories to limit the extent of a fund's investments in securities that do not settle within seven days. These changes are designed to help better prepare funds for stressed conditions and prevent funds from over-estimating the liquidity of their investments. Affected funds would also be required to maintain a minimum amount of highly liquid assets of at least 10 percent of net assets to help manage stressed conditions and heightened redemption levels. These funds would publicly report certain information about their liquidity profiles to improve the availability of information about liquidity risk for investors as well as information about use of liquidity classification service providers."

The SEC states, "In addition, the proposal would require open-end funds other than money market funds and exchange-traded funds to use a liquidity management tool called 'swing pricing,' which is a method to allocate costs stemming from inflows or outflows to the investors engaged in that activity, rather than diluting other shareholders. The proposal would also require a 'hard close' for relevant funds. With a hard close, investor orders would need to be received by the fund, its transfer agent, or a registered clearing agency by the time of the fund's pricing, typically 4 p.m. ET, to receive that day's price. In addition to helping to operationalize swing pricing, a hard close would help prevent late trading of fund shares and improve order processing. The release also includes questions about alternative liquidity management tools, such as the use of liquidity fees."

They add, "Finally, the proposal would provide the Commission and investors with timelier information. As proposed, funds would be required to file portfolio and other information on Form N-PORT on a monthly basis within 30 days, with the report becoming public after 30 additional days. This change would triple the amount of information currently available to investors and would apply to all registrants that report on Form N-PORT, including most open-end funds and registered closed-end funds, with certain exceptions."

In response, the release "ICI: Swing Pricing Proposal From SEC Could Severely Harm Savers" counters, "Investment Company Institute (ICI) President and CEO Eric Pan released the following statement today after the Securities and Exchange Commission (SEC) proposed rule amendments around swing pricing: 'The SEC's swing pricing proposal could have an enormous negative impact on the more than 100 million Americans who invest in funds, especially retirement savers. 63 percent of 401(k) plan assets are held in mutual funds, and these plans will be severely harmed by the SEC's proposed 'hard close,' which is likely to make it impossible for 401(k) plans to place trade orders for their participants."

Pan continues, "Mutual funds are highly liquid products that help Americans save for the future. ICI has presented extensive research regarding the experiences of funds during March 2020. There is strong evidence that funds did not cause or amplify problems in the financial markets in March 2020. It's disappointing that the SEC is not taking this research into account. The proposal to mandate swing price is unnecessary. Its rationale is built on minimizing dilution -- yet the SEC's assertions lack detail or supporting evidence. The swing pricing proposal faces insurmountable operational hurdles, risks confusing investors, and upending mutual funds' longstanding and equitable share pricing methodology."

He also says, "The proposed changes to the fund liquidity rule would make it even more prescriptive and offer no obvious benefit for fund shareholders. Instead, these changes will disrupt funds' current practices at a significant cost to investors. The changes will negatively impact the operation of many funds that investors rely on to access certain investment strategies. The Commission must realize that rushing ahead with consequential proposals, fundamentally altering the shareholder experience, is a hallmark of the 'regulation-by-hypothesis' approach that the agency's leadership is now known for."

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