JAAA - The Fed Holds Rates, I Hold Cash: 2 Funds I'm Buying

2025-05-21 12:30:22 ET

Summary

• The Federal Reserve has kept rates at 4.25-4.5% all year, despite several opportunities to bring rates down. Their willingness to keep rates high may be a gift.
• This gift is for cash investors, who receive yields tied to central bank rates. The Fed will continue to hold rates above 4%, indicated by several members and futures predictions.
• Cash is the right way to play things with these rates, and I am buying two cash funds that will benefit from these rates, with the potential to outperform T-Bills.

Introduction

On May 8th, the Federal Reserve Open Market Committee ("FOMC") met to discuss and decide on the direction of interest rates in the United States. The FOMC sets monetary policy, namely the US central bank's interest rate for overnight lending. This rate, the Federal Funds Rate, dictates the floor for interest rates. This is because it is seen as the risk-free rate by banks, and there is little reason for anyone to loan money at a lower rate than they can get from the Federal Reserve. We usually measure that rate with SOFR, the Secured Overnight Financing Rate....

For further details see: