Investors are preparing for a potential interest rate cut by the Federal Reserve in September and have been pouring into money market funds in the past week. According to data from Bank of America, investors injected $37 billion into money market funds in the week ending August 21. Bank of America's analysis suggests that historically, the first interest rate cut by the Federal Reserve during an economic soft landing can bring in more cash inflows.
Investors have begun pouring into money market funds before the Federal Reserve's interest rate cut. Bank of America released a set of data on Friday, August 23, showing that investors injected $37 billion into money market funds in the week ending Wednesday, August 21, in an attempt to prepare for the September interest rate cut by the Federal Reserve.
Bank of America cited data from financial data provider EPFR, stating that the cumulative inflows of money market funds are expected to reach the highest level since January.
According to Bank of America's weekly summary of global market fund inflows and outflows, investors allocated $20.4 billion to the stock market, $15.1 billion to bonds, and $1.1 billion to gold in the week ending August 21.
The latest fund flow trends show that some fund managers believe that the interest rate cut by the Federal Reserve will lower the ROI of money market funds, leading to capital inflows into the stock market and bond market.
Some large investors typically pour into money market funds before the Federal Reserve's interest rate cut because these funds offer a wide variety of short-term fixed income securities, which often provide higher returns than short-term U.S. Treasury bonds.
Bank of America strategist Jared Woodard and his team wrote, "Historically, during an economic soft landing, the first interest rate cut by the Federal Reserve brings in more cash inflows, while if it's a hard landing, the bond market may be the winner."
Based on recent economic data from the United States, the overall indication is that the U.S. economy will gradually slow down, or have a "soft landing," rather than a more severe "hard landing."
Currently, investors have full confidence in the prospect of a rate cut by the Fed for the remainder of this year, and people are eagerly awaiting the keynote speech by Fed Chairman Powell at the Jackson Hole Symposium.
In addition, data from Bank of America and EPFR show that investment-grade bonds saw an inflow of $8.1 billion, marking the 43rd consecutive week of inflows. Emerging market stocks attracted $4.7 billion in inflows in just one week, marking the 12th consecutive week of net inflows, the longest duration since February 2024.