The Federal Open Market Committee did not adjust the target range of its federal funds rate at its March meeting, keeping it at 5.25-5.50%. Also staying the same was the size and pace of easing in 2024 indicated in the Summary of Economic Projections at three quarter-points. Fed Chair Jerome Powell reiterated policymakers need more “confidence” that inflation is falling, especially after some measures came in hotter than expected. The broad liquidity market continues to benefit from this pause in policy action, with yields remaining at high levels. The MMDT Cash Pool daily net yield was 5.53% on April 1, 2024.
Current Cash Pool 7-day net yield
Your Representatives
Federated Hermes
Participant Services
Wayne.Perry@FederatedHermes.com
1-888-965-MMDT (6638)
Wayne is responsible for managing the MMDT Participant Services team from the High Street office.
Wayne Perry
Federated Hermes
Associate Sales Representative
Caroline.Kafafian@FederatedHermes.com
724-809-1250
Caroline is responsible for relationship management with MMDT participants.
Caroline Kafafian, CIMA
For more information on how you can seek to take advantage of a rising-rate environment and invest in the MMDT Cash Portfolio, call 617-335-0770.
Federated Hermes
Senior Vice President
Senior Sales Representative
Brian.Willer@FederatedHermes.com
617-335-0770
Brian is responsible for relationship management with MMDT participants.
Brian R. Willer, CIMA
MMDT Cash Pool yield remains elevated amid Fed pause
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MMDT is the state sponsored investment pool offered by the Commonwealth of Massachusetts to its public entities
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,CFA
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Deborah Cunnigham, CFA
April 1, 2024
For liquidity products across the industry, the here & now is attractive and the near & future looks good, too. We think the first Federal Reserve rate cut won’t arrive until July, meaning this remarkable period in cash management history could stretch for many more months.
Investing in the now
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Preparing for declining rates
Like the cat that scampers easily up the tree but struggles to climb down, strategies benefiting from rising interest rates are more straightforward than those for when they decline.
When the Federal Reserve first raised interest rates to address soaring inflation two years ago, treasurers and public entity cash managers had multiple options to take advantage of the rising rates, including deposit products, Treasury bills and pooled investment vehicles such as the MMDT Cash Pool. It capitalized on the 11 interest -rate hikes by the Fed given its ability to invest in a variety of money market securities across the yield curve. During this rising -rate period, Paige Wilhelm, portfolio manager of MMDT Cash Pool, slightly extended the portfolio’s weighted average maturity (WAM) to capture higher interest.
The Fed may be on the verge of reversing course and decreasing interest rates now that its hawkish policy has pulled inflation down significantly over the last two years. The Consumer Price Index, which hit a 40-year high of 9.1% in June 2022, is nearing policymakers’ 2% target. The exceptionally strong labor market, which has contributed to the inflationary environment, appears to be weakening, if slowly. While Fed Chair Jerome Powell wants to see inflation and the economy cool further before cutting rates, officials have indicated they likely will ease this year.
What does this mean for treasurers and public entity cash managers?
The same options remain, but navigating the shifting short end of the yield curve and the varying rates of deposit instruments is difficult and time-consuming. As the market prices in rate cuts, we extended WAM to hold higher yielding money market securities longer. Past performance is not a guarantee, but this strategy has the potential to provide an attractive yield compared to T-bills, and in some cases deposit accounts as the Fed cuts rates.
The MMDT Portfolios provide the benefits of diversification, active and professional portfolio management, and a competitive fee structure to assist the public sector with liquidity and income needs no matter the rate environment. Please contact your MMDT representative with any questions.