The presence of absence

Before I give my monthly remarks, my colleague Susan Hill, head of our Government Liquidity Group, covers the Federal Open Market Committee (FOMC) meeting:

Will he stay or will he go? The answer for Federal Reserve Chair Jerome Powell is stay, at least for now. At his last press conference as Fed Chair, Powell yesterday committed to remaining on the central bank’s Board of Governors until the Department of Justice (DOJ) investigation is concluded with finality and transparency. Despite saying he will take a low profile, Powell's presence as a governor, but not chair as his term ends May 15, could lead to an awkward transition for his successor, Kevin Warsh, after his expected confirmation. Or it could result in a more definitive statement from the DOJ that convinces Powell the probe has truly concluded, prompting him to step down soon. The sticky situation also means that to bring Warsh on the FOMC means someone else needs to leave. The solution surely will be that Governor Stephen Miran has taken part in his last policy meeting.

The committee did not change rates, but meeting was characterized by the most dissension in more than 30 years. Miran favored a 25 basis-point rate cut; three Fed regional presidents objected to the easing bias retained in the FOMC statement, backing a more balanced message. Opposition to statement wording is unusual. Powell characterized the disagreement as consistent with the center of the FOMC moving toward neutral. But it likely reflects a growing shift toward concerns about the inflationary impact of the Iran war.

The headline March Personal Consumption Expenditures (PCE) index increased 3.5% year-over-year, with the core measure rising 3.2%. Powell characterized that as reflecting the energy price shock from the Iran war and said that the core figure was influenced more by tariff-induced prices pressures on goods. But the scope and duration of the Middle East conflict creates high uncertainty, and near-term inflation expectations have risen. With or without Powell, Fed policy is probably on the sidelines as long as the war continues. We think any ease unlikely until late this year, if one comes at all. —Susan Hill

Kevin Warsh is worthy Politics is theater, and Warsh faced histrionics in the Senate Banking Committee hearings by politicians pleasing their bases with tough questions and some insults (“sock puppet”). I personally think he is likely to uphold Fed independence and be guided by economic data. His pedigree, education and earlier stint as a Fed governor suggest he understands how important that is. And let’s not forget if he is confirmed, he will be Chair after the next presidential election as the term is six years. He cannot afford to lose credibility in the short term by pushing for unwise monetary policy to please the White House. Lastly, to some he might appear the best of a bad bunch of candidates. But he would be a compelling candidate in any period. 

When you are big, everything is big US money market fund total assets reached a record high in March and held firm in April at around $7.45 trillion (iMoneyNet). We outlined the reasons in my prior commentary, but lower tax payments for many, the Iran conflict and the continued attractiveness of yields topped the reasons in our estimation. But individual Tax Day seemed as if everything reversed course. After all, the Investment Company Institute (which calculates assets differently than iMoneyNet) reported that the week ending April 16 saw the single largest weekly decline ever, of $​175.​8 billion. Thirty-years ago — heck even 10 years — that would have been a panic-level amount. But it represented just 2.25% of the total (from $7.819 trillion to $7.643 trillion). In other words, money fund assets barely budged. That stability is reflected in the steadiness of average yields; Crane Data’s 100 Money Market Fund Index has hovered a few percentage points below 3.50% for some time now. It’s “Big Time” for the asset class.

Take control of your cash management — learn more at our Liquidity Management Center