Amid high-short term rates and diverging Fed opinions, investors have turned to money market funds, waiting for clarity on the economic outlook.
In this week’s episode, Laurie Mount, Portfolio Manager with RBC’s BlueBay U.S. Fixed Income team, highlights key trends shaping cash management strategies:
The Fed lowered the fed funds rate by 25 basis points to 3.50–3.75%, with varied perspectives on the pace of rate adjustments.
Money market assets surpassed $8 trillion, fueled by elevated short-term rates and cautious investor sentiment.
Looking ahead, 2026 may bring key labor market developments critical to inflation, growth, and further potential Fed cuts.
Transcripts
Welcome back to The Weekly Fix. My name is Laurie Mount, Portfolio Manager with RBC’s BlueBay US Fixed Income team focusing on cash management strategies.
Last week, as expected, the Federal Reserve delivered a 25-basis point cut to the fed funds rate, bringing the target range to 3.50–3.75%. For the third straight meeting there were dissents and similar to October there were dissents in both directions, with Fed presidents Goolsbee and Schmid voting in favor of a hold and Governor Miran dissenting for the third straight meeting in favor of a 50-basis point cut.
bp cut in:
During the press conference Chair Powell repeatedly said that the fed funds rate is now at the upper end of the Fed's estimate of the neutral rate, meaning any further moves will be data dependent. He balanced this by taking out upside risk to the policy rate path and expressing concerns around a labor market that is still cooling. Chair Powell reiterated his message that there is no risk-free path for policy given the challenges to both of the Fed’s goals for prices and employment. In explaining the rate cut, the Fed chair said it appears that most of the above-target inflation seen today is driven by tariffs and said the labor market faces significant downside risks.
With short-term rates still above 3% cash continues to enter the money market space. According to Crane Data on December 1st money market balances broke the $8 trillion mark. Money market funds have continued to be a place for investors to park cash as they adopt a wait-and-see approach.
Our view in:
As we look ahead, our cash strategies continue to focus on identifying opportunities in floating-rate securities and shorter-duration fixed-rate instruments with maturities under one year. With the nomination of a new Fed chair expected shortly after the 1st of the year and an expected more dovish Fed in the second half of 2026 we will be closely monitoring Federal Reserve communications and all available economic data for insights into the policy outlook and market implications for 2026.
As always, thank you for joining us today and have a joyful holiday season and a prosperous new year.
