The Federal Reserve's Open Market Committee raised short-term interest rates for the 10th straight time Wednesday, bringing its Federal funds rate target up a quarter-point to a range of 5.0-5.25%. The release, entitled, "Federal Reserve issues FOMC statement," tells us, "Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks."

It explains, "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 5 to 5-1/4 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, 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 its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."

The FOMC 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 labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Watch for money market fund yields to move higher in coming days as the latest Fed hike gets digested.

In other news, investment newsletter The Independent Vanguard Adviser writes on "Stashing Cash at Vanguard." Editor Jeff DeMaso asks, "Is my money safe" He explains, "In normal times, that's not a question I hear very often. But with two large regional banks collapsing in the same weekend in March, my inbox suddenly became full of variations on that theme.... [T]he short answer is that I believe our investments and cash are safe at Vanguard. However, the banking fallout seemed like a prime opportunity to dig deeper into Vanguard's various cash-management solutions."

The article continues, "When's the last time you talked money markets over cocktails? Well, believe it or not, money market funds have suddenly gone from boring to bodacious. With banks failing and the survivors still paying paltry yields on checking and savings accounts, savers have flocked to money market funds. Yields there have marched higher over the past year as the Federal Reserve (Fed) hiked short-term interest rates from the near-zero bound to 5%. Vanguard's three taxable money market funds -- Treasury Money Market (VUSXX), Federal Money Market (VMFXX) and Cash Reserves Federal Money Market (VMRXX) -- pulled in over $30 billion in net new cash during the first quarter. About $20 billion of that flooded in in March alone!"

It says, "I've got a few important points I want to make about money market funds. They deal with safety and yields. Safety first. Vanguard's money market funds are rock-solid. The potential for one of Vanguard's funds to 'break the buck' -- trade below the sacred $1.00 NAV -- is simply not on my list of worries. In part, you can thank Vanguard's low-cost advantage, which means the portfolio managers tending to your cash can keep risk low and still offer competitive yields. That's a win-win for all of us."

The IVA comments, "Additionally, Vanguard has been running money market funds since the 1970s without a misstep. They are committed to ensuring their money market funds always trade at $1.00. Consider that the firm waived millions of dollars in fees during years when interest rates were near zero just so they could keep money market yields after fees above 0%. (A drop below a 0% yield would've pulled their NAVs below $1.00.)"

They state, "This 'sponsor' commitment isn't idle talk, either. Technically, only two money markets have ever broken the buck -- the Primary Reserve Fund in 2008 and the Community Bankers US Government Fund in 1994. However, according to the New York Fed, at least 28 other money market funds would've broken the buck in September 2008 if the firms behind the funds hadn't stepped in."

DeMaso also writes, "Speaking of Vanguard's taxable money market funds, choosing among the three amounts to splitting hairs. Just pick one and stick with it -- chasing the tiny differences in their yields isn't a good use of your time. When it comes those yields, money market yields closely track the fed funds rate. You can see this clearly in the chart below plotting Federal Money Market's yield against the fed funds target rate over the past two decades or so. (I'm using quarterly data here.)"

Finally, he comments, "Not content to leave well enough alone, Vanguard's been testing out some other cash solutions for investors even as its money market funds have raked in the dough. A year ago (April 2022), Vanguard began testing something it called Cash Deposit with a limited number of clients. Cash Deposit is meant to be an alternative for cash in your investment account. Rather than hold Federal Money Market, Cash Deposit sweeps your money into several banks that Vanguard has relationships with to give you an attractive yield and FDIC coverage -- or at least that's the idea. You can find a landing page for Cash Deposit here."

The post adds, "Last fall, Vanguard rolled out Cash Plus Account on a limited basis. No, I didn't get an invite to test this one out either. And sorry if the names are confusing -- blame Vanguard, not me! You can find a landing page for Cash Plus Account here, and like Cash Deposit, it functions by sweeping your money into partner banks to deliver a competitive yield. The big difference is that Cash Plus Account is separate from your investment account. It'll have its own account and routing number, so you can set up bill-pay or receive direct deposits. It'll also connect to digital payment apps like PayPal and Venmo. What it doesn't have, like some other cash accounts offered by competitors, is an ATM card or the ability to write checks."

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