We’re past the midpoint of 2025 and the capital sitting in US Money Market Funds (MMFs) has already hit a record $7.4 trillion, defying predictions that the pandemic-era MMF boom would slow once interest rate cuts seemed imminent, especially in the US.
Even with the Fed forecasting two quarter-point rate cuts this year, some analysts anticipating at least five quarter-point cuts by the end of next year, and with the President constantly hammering Fed Chair Jerome Powell’s refusal to cut rates, MMFs continue to see record inflows
The uncertainty currently emanating from the US means that MMFs, and the stability and liquidity they provide, remain an attractive short-term safe haven for institutional investors. It’s why in the week ending June 4, US investors alone bought a net $66.24 billion worth of MMFs – their largest weekly net purchase in six months, according to LSEG Lipper data. This massive inflow occurred even though most of the ‘Liberation Day’ tariffs were paused. While these immediate reactions reflect short-term caution, the broader concern is that prolonged tariff tensions could weigh heavily on global growth and stoke inflation – reinforcing the strategic role of MMFs as a long-term safe haven.
Over the next few weeks, a small portion of that capital was withdrawn. Then, on June 22, seven US B-2 stealth bombers, armed with over a dozen 30,000-pound “bunker buster” bombs, flew into Iran and struck three of the country’s nuclear facilities. In the week that followed the strike, MMF buying interest was renewed, receiving about net $10.95 billion from US investors. Even with the S&P 500 hitting record highs, the fresh injection of uncertainty saw investors retreat into cash again.
This is why MMFs currently have such staying power: security, liquidity and yields (SLY) – in that order. That is, almost as much as investors value the stability, they value the ability to withdraw or input their capital quickly if something changes. With MMFs, yields are always the lowest priority – especially in an environment where even a drastic 2% reduction would leave yields far higher than they were pre-pandemic.
What does this mean for Money Market Fund providers?
For MMF managers and portals, the question is not whether investors will continue to seek refuge in their products, but how they differentiate themselves in a market where a few basis points are often all that separate each MMF’s respective yield.
Offering lower fees is one obvious tactic, especially when many MMF investors entered the space at a time when fees were waived altogether. In reality, with fees already about as low as they can be, it’s not a long-term solution.
Many of the biggest and most forward-thinking investment portals have already realised that the only real differentiator is the service they can offer. Goldman Sachs, JP Morgan, and others have all invested heavily in automating their portals, giving their investors greater settlement certainty, instantaneous reporting and a fully trackable trading and settlement process, allowing on-demand access to capital, directly from any treasury system. They all did it with the support of Calastone’s Money Market Services.
This automation also allows for rapid MMF buying and withdrawing – with the inflows and outflows of the last few months a clear indicator of how valuable that can be. From experience, we find that treasurers tend to act pre-emptively, pushing capital in or out of MMFs based on expected macro shifts, as well as in response to actual events. Therefore, in times of heightened volatility, whether from tariffs or warfare, allowing them to react in real time is an essential differentiator.
Uncertainty as an opportunity
Economic certainty feels a long way off. Even with forecasted rate cuts this year, there’s still plenty of potential for turbulence owing to the situation in the Middle East, the ongoing impact of tariffs and the predicted multi-trillion dollar increase to the US debt ceiling. At the same time, rising inflation projections and growing concerns over stagflation in the US are adding another layer of complexity to the investment landscape, reinforcing the appeal of MMFs as a defensive allocation.
On top of that, global growth prospects are deteriorating. The OECD has downgraded its growth forecasts for 2025 and 2026, citing weakening sentiment and rising policy uncertainty. According to the OECD, global GDP growth has been revised downward to 3.1% for 2025, reflecting weakening sentiment and rising policy uncertainty – a backdrop that continues to drive institutional investors toward the safety and liquidity of MMFs. While countries like Germany and China are turning to fiscal stimulus to boost their economies, the US is moving in the opposite direction, leaning towards fiscal tightening. This divergence adds yet another layer of macroeconomic risk and further reinforces the appeal of MMFs as a safe, liquid refuge.
As well helping to better protect investors from this uncertainty, a forward-thinking, automated MMF product allows them to thrive in it – and prepares the institution’s wider fund ecosystem for success once the market is on surer footing.
Find out more about how Calastone is creating the infrastructure for the future of money market funds here.
