KB Advisory Group founder Christine Benz breaks down the disconnect between Main Street and Wall Street on “Making Money.”
The amount of cash held by investors Money Market Accounts It hit a record high in August, even as looming interest rate cuts reduce returns.
Money market account assets hit $6.24 trillion this month, according to data from the Investment Company Association, but the market Federal Reserve System It is scheduled to cut interest rates at its policy meeting on September 17-18.
When the central bank cuts the benchmark federal funds rate, financial institutions are expected to cut yields on money market accounts that have been above 5 percent in response to the shift in monetary policy.
Despite these predictions, both individual and institutional investors continue to put cash into money-market accounts rather than investing in stocks or bonds. About $100 billion flowed into money-market accounts in August, according to data firm EPFR.
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Assets in money market accounts hit a record high this month, but with the Fed looming to cut interest rates, lower interest rates could lead to outflows. (Photo: Angela Weiss/AFP via Getty Images/Getty Images)
The latest inflows also include institutional investors, according to the firm's data, while individual investors hold more than $4 trillion in money markets, according to data from the Federal Reserve Bank of St. Louis.
If a weakening economy leads the Fed to cut interest rates, investors' clinging to cash could be put to the test. Reduction rate sooner or more severely than expected.
Futures markets linked to the Fed's key policy rate are pricing in a roughly 2 percentage point cut over the next year, but the Fed is expected to begin cutting rates by 25 basis points in stages starting next month.
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Money market assets reached $6.24 trillion in August, according to data from the Investment Company Association. (Photographer: Michael Nagle/Bloomberg via Getty Images/Getty Images)
If the economy shows signs of slowing more than expected or if labor market conditions worsen, the Fed could cut rates further. In that scenario, financial safe havens like money markets could become more attractive despite lower yields.
Conversely, if the stock market avoids a sell-off due to concerns about the health of the economy, higher returns from stocks and bonds could encourage investors. Move cash Get out of the financial markets.
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At a policy meeting this month, Fed Chairman Jerome Powell said “the time has come” to cut interest rates and ease monetary policy. (Photo: Roberto Schmidt/AFP via Getty Images/Getty Images)
Brian Nick, head of portfolio strategy at Newedge Wealth, told Reuters he was persuading clients to Diversify your portfolio If yields fall as expected in the coming months.
“You have to convince investors that there are reasons to move away from money markets, but also reasons why other assets offer better opportunities,” he said. “That will ultimately be the winning approach.”
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Reuters contributed to this report.
