Cash-Like Funds Hold Key to Why U.S. Won’t See Negative Rates

Money market funds holding almost $5 trillion might see exodus
Argument that Fed has to cut to negative doesn’t hold: UBS

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C.Photographer: Andrew Harrer/Bloomberg

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By James Hirai

May 14, 2020 at 2:08 PM UTC

This article is for subscribers only.

There’s a not-so-obvious, but fundamental reason why the U.S. Federal Reserve probably won’t cut interest rates to below 0%.

It’s that investors would drain cash-like funds -- which hold almost $5 trillion and underpin liquidity in the financial system -- and deposit it with banks, where rates would likely be higher, according to UBS Group AG.