Maintaining momentum

The last few years have been remarkable for stable value investments. Even as the Federal Reserve has pivoted to easing rates, assets in liquidity products have marched steadily upward. Depending on your sources, which all calculate it differently, total industry money market fund assets hit record highs in 2025.

How investors view money funds this year will probably be influenced by recency bias. With the Fed’s latest Summary of Economic Projections (SEP) indicating at least one 25 basis-point cut in 2026, yields are likely to slide. Behavioral economics posits that some investors will focus on the decline, despite the likelihood that yields across the industry will remain attractive. We expect most investors, however, will remain happy with money funds even if the terminal fed funds rate rests in the lower 3% area, as the SEP dot plot forecasts. Total assets might decline, but if they do, it should be gradual.

Fed independence will survive the pressure

As you might have heard, Chair Jerome Powell’s term ends this spring. But knowing he will pass the baton to the new head will not mute the debate about the Fed's independence within the US government. President Trump’s relentless insistence that the Fed cut rates continues to threaten the long-held insulation the central bank enjoys from politics. Last year, Trump took many routes to influence it, such as criticizing Powell, attempting to fire a governor and appointing White House economist Stephen Miran to the board. In 2026, his path might coalesce into a single road. A decision on the administration's appeal to the Supreme Court that a president has the authority to shape the federal agencies could come soon. In December, the court heard arguments about the constitutionality of Trump’s firing of former Federal Trade Commission Commissioner Rebecca Kelly Slaughter, and some pundits think the court might allow it. But if the justices vote in favor of the administration, will they carve out an exception for the Fed? They did so in the summer, stating that the central bank is a “uniquely structured, quasi-private entity.” We think the court will repeat that position. While Powell’s successor is likely to erode some of the buffer between the White House and Fed headquarters, our prediction is the integrity of the institution will prevail.

Digital growth

The adoption of tokenized money funds and the progress toward stablecoin shares that began last year should expand in 2026. It is an exciting time for the industry as digitalization is increasing investor opportunities and indicating that liquidity products can be attractive no matter the wrapper.

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