Economics
Cash Exodus Shows Just How Much Quicker Funds Adapt to Fed Hikes
- Funds historically more nimble in passing on Fed rate changes
- Total size of US money-market funds has topped $5 trillion
The Marriner S. Eccles Federal Reserve building in Washington, DC.
Photographer: Stefani Reynolds/BloombergThis article is for subscribers only.
The recent flood of cash from bank deposits to money-market vehicles has sharpened investors’ focus on just how much more nimble those funds are in passing on interest-rate changes by the Federal Reserve.
Over the past two decades, money funds have passed on around 88% of changes in central bank interest rates, compared with just 26% for rates on retail cash deposits — more than three times the amount — according to an blog post from the Federal Reserve Bank of New York. And that dynamic, combined with lag effects, means that there’s scope for money funds to keep ballooning in size.