NY Times: Buy Money Market Funds
The New York Times writes, "A Simple Way to Benefit From Rising Rates: Buy Money Market Funds." The Jeff Sommer column states, "Rising interest rates have wreaked havoc this year in financial markets. Yet they are an unambiguous boon in one unheralded arena: money market funds, where the higher rates almost immediately funnel more money to investors without major complications. This is a big exception to the other major effects of rising rates, which have made plenty of negative headlines because they are a drag on the economy, a burden for people seeking mortgages and a punishing hurdle for stocks. In the bond market, rising rates are a complicated, head-spinning fact of life, setting off widespread losses, though they also promise better returns in the years ahead, as I noted last week. In comparison, money market funds are blessedly simple. If you're holding cash in them or are thinking of doing so, higher interest rates are something to celebrate right now." It explains, "That's because money market funds closely follow short-term rate shifts by the Federal Reserve. On Sept. 16, the Federal Reserve raised its short-term policy rate, the Fed funds rate, one quarter of a percentage point, to a range of 3.75 to 4 percent. Money market rates began moving higher almost immediately. That said, they didn't jump a quarter point overnight, as the Fed funds rate did. Money market funds are invested in short-term securities like Treasury bills, and it now takes about 36 days for all of these holdings to mature and be completely replaced with higher-yielding investments, according to Crane Data, an independent financial market research firm. So while money market rates started moving upward soon after the last Fed rate increase, they have continued to edge gradually higher this week. The average interest rate for the 100 biggest money market funds tracked by Crane Data now stands at 3.71 percent. It was 3.51 percent at the end of August. 'If things go the way the markets expect, money market fund rates will reach 4 percent by the end of the year, and they will keep rising from there,' said Peter G. Crane, the firm's president and a longtime expert on money market funds." The Times piece continues, "The markets assume that the Fed will raise short-term rates once more this year -- but probably not at its meeting next week, which comes shortly before the midterm elections.... [A]verage money market rates can be expected to rise to somewhere close to 4.5 percent. Rising short-term interest rates would probably count as more bad news for the economy, for multiple financial markets and for the great majority of consumers. But higher rates would only make the income stream from money market funds more appealing. Globally, money market funds held $13.5 trillion at the end of March, according to the Investment Company Institute.... They already have more than $8.4 trillion in assets in the United States alone, up from about $5.4 trillion five years earlier, Mr. Crane said. And as long as the economy keeps expanding and short-term rates remain above roughly 3 percent, the funds seem likely to keep growing." Finally, it adds, "Money market funds won’t make you rich. But in a time of rising interest rates, they are a convenient and immediately rewarding place to keep cash. When the news is bad, money market funds make me calmer. That's no small thing in 2026."
