Money Market Funds Thrive Despite Anticipated Fed Cuts, JPMorgan Strategists Report

Money market fund assets are on the rise at the beginning of the year, defying expectations of a shift into stocks and fixed income, according to JPMorgan strategists. Taxable U.S. money market fund balances have increased by $75 billion so far this year, a departure from the typical seasonal outflows seen in the past decade. This increase challenges the belief that the $6 trillion of cash in money market funds will move into alternative assets such as fixed income and equities.
 

Last year, money market fund assets saw a significant increase of over $1.1 trillion, or 22%, one of the largest increases in the past decade. Despite expectations of outflows this year due to potential rate cuts by the Federal Reserve, historical analysis shows that money market funds continued to see inflows even during previous easing cycles. JPMorgan's analysis suggests that much of the cash in money market funds is "core liquidity" used for cash management needs, with only around $500 billion susceptible to flight risk, particularly from retail investors. Overall, the strategists anticipate that money market fund assets will remain elevated in 2024 and do not expect significant net outflows.

The rise in money market fund assets challenges the expectation of a shift into stocks and fixed income, with historical analysis suggesting that inflows may continue even in the face of potential rate cuts by the Federal Reserve. The majority of the cash in money market funds is considered "core liquidity," and the strategists do not anticipate significant net outflows in 2024.