Fed's Rate Cuts Will Trigger a $2 Trillion Exodus from Money Market Funds

Forex - Torsten Slok from Apollo stated that the Fed's easing cycle will trigger a significant outflow from money market funds. The firm's chief economist noted that the Fed's interest rate hikes have pumped $2 trillion into money market accounts from March 2022 to September 2024. Funds held in money market funds reached an all-time high of $7 trillion this month. Slok indicated that as the central bank starts to lower interest rates, this money will likely flow out of these accounts and into higher-yielding assets. However, according to Slok, this shift will not benefit stocks but will instead result in an influx into credit markets. He stated, "Since the Fed is lowering interest rates, where will the $2 trillion added to money market accounts go? The most likely scenario is that the money leaves the money market accounts and flows into higher-yielding assets like investment-grade private credit." Slok mentioned that credit markets seem well-positioned for further inflows post-election, stating, "We expect credit fundamentals to remain strong. This, combined with high yields and a steep yield curve, should continue to attract inflows into credit, which should support valuations even if the room for further compression becomes more limited."