Federal Reserve Chair Jerome Powell’s keynote address at the central bank symposium in Jackson Hole, Wyo., all but promised the Federal Open Market Committee (FOMC) will begin the easing cycle when it convenes Sept. 17-18. While the fed funds futures markets are expecting as much as a percentage point of rate cuts this year, we think the Fed will start with a quarter-point reduction and follow the data from there. A slower march down the mountain from the long-held target range of 5.25-5.00% should allow for liquidity products to remain in favor for investors due to their attractive relative yields.

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

A measured pace of rate cuts could benefit liquidity investors

MMDT is the state sponsored investment pool offered by the Commonwealth of Massachusetts to its public entities

,CFA

Deborah Cunningham, CFA August 30, 2024

Markets are yet again pricing in too many Fed cuts.

Here we go again

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Sweet spot

When the Federal Reserve first addressed soaring inflation two years ago, treasurers and public entity cash managers had multiple options to take advantage of the increased interest rates, including mutual funds, deposit products, Treasury bills, and investment pools. Participants in the MMDT Cash Portfolio benefited from the development as the portfolio managers invested in a variety of money market instruments likely to benefit from the rising rates. By extending the portfolio’s weighted average maturity (WAM). This allowed the portfolio to be invested in the long end of the liquidity yield curve (securities and paper maturing within a year) to capture higher yields. Fed rate projections and Chair Jerome Powell’s recent comments suggest that the central bank will ease monetary policy soon, potentially in September, but that the process will be steady and data dependent. We think that puts participants in the MMDT Pools in a good place. Measured cuts would present the opportunity to capture attractive yields in the liquidity-markets between each Fed action, and the decline could lead to price appreciation in short-term bonds. Past performance is not a guarantee of future results, but treasurers and public-entity cash managers might be in a sweet spot. In addition to seeking attractive returns, the MMDT Portfolios provide the benefits of diversification, active portfolio management by investment professionals and a competitive fee structure. We think this positions them well to address the public sector’s liquidity and income needs, no matter the rate environment. Please contact your MMDT representative with any questions.

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Mortgage-backed Securities