CNBC.com's "ETF Edge" writes that the “$7 trillion 'wall of cash' worry is looming for investors once Fed interest rate cuts start." The piece says, "This may not be an era in which Americans are awash in physical currency fattening their wallets, but we are awash in cash parked inside accounts that have been generating attractive yields thanks to Federal Reserve interest rate hikes to combat inflation. There is a record amount of cash in money market funds, roughly $7.6 trillion, according to Crane Data. But as the Federal Reserve prepares to cut rates for the first time in a year, maybe by as much as 50 basis points -- a policy shift that will, over time, reduce the yields on risk-free cash-equivalent investments -- market attention has shifted to whether that cash will be on the move. At the most extreme, Wall Street's so-called 'wall of cash' theory -- which claims that all that cash on the move can create its own stock market rally -- has been debunked about as many times as it has been offered." They quote, "Peter Crane, president and publisher of money fund research firm Crane Data, has heard it all before, at least when it comes to the Fed and money market funds, and he has a simple response: money fund assets just keep growing, and the only times in recent history when they've gone down as opposed to up is when rates are literally at zero during periods of economic calamity. 'The rates matter but much less than most people believe,' Crane said. In fact, in the 52-year history of money market funds, assets have only gone down after the dotcom bust and financial crisis, periods where intense economic stress led to rock-bottom rates, a 'bottom of the rate cycle nailed to zero,' he said." CNBC writes, "If things get bad enough in the economy that the Fed has to cut more aggressively sooner rather than later, that's not exactly a sign of a market where investors are likely to be overly aggressive with their own risk profile, either. 'Dream on Wall Street,' Crane said. 'It makes for a good talking point, but the $7 trillion is not going anywhere but up.' There has also been a shift over time in the usage of money market funds, with what was once mostly a retail investor phenomenon now majority institutional and corporate cash -- roughly 60% of the market, according to Crane's data. 'They are not moving, no matter what,' he said. 'They are not going into the stock market.'" They comment, "It's not that money fund researchers like Crane deny that lower rates matter, or that some of the money fund assets may indeed move to higher-risk, higher return areas of the market -- he thinks that is maybe 10% of the $7 trillion-plus, though he adds there is no precise data to rely on for such an estimate. But when you consider the roughly $20 trillion that Americans leave in bank deposits, basically giving their money to Wall Street to go off and make more money on while earning no money themselves, a 25 basis point cut in the current interest rate environment does not exactly make money funds a dead option."
