The Federal Reserve is expected to cut interest rates next week for the first time in a year, possibly by as much as 50 basis points, raising questions about what happens to the record $7.6 trillion now sitting in money market funds.
For over a year, elevated yields on cash-equivalent investments have drawn both institutional and retail money into funds offering around 4.3% returns. But lower rates will gradually reduce those payouts, prompting speculation that capital will rotate into riskier assets.
Cash unlikely to move quickly
Wall Street’s “wall of cash” theory — that these trillions could spark an equity rally once yields fall — has circulated for years, but skeptics say history shows otherwise. Peter Crane of Crane Data notes money fund balances have only meaningfully fallen during crises that forced rates to zero, such as the dotcom bust and 2008 financial crisis.
“Dream on Wall Street,” Crane said. “The $7 trillion is not going anywhere but up.”
Roughly 60% of money market balances now come from corporate and institutional investors, who are less likely to shift into equities regardless of yields. At most, Crane estimates perhaps 10% of balances might flow out.
Portfolio implications
Even if the Fed cuts, money funds will adjust gradually given their 30-day maturity structure. Short-term inflows may even increase temporarily, as funds continue holding higher-yield securities.
For investors weighing alternatives, analysts suggest moving out the Treasury curve via ETFs with 2–5 year duration, building bond ladders to manage volatility, or selectively adding equity exposure outside U.S. megacaps. But strategists caution that most diversified portfolios already carry sufficient stock market risk.
In the near term, the “wall of cash” is more likely to remain parked than trigger a flood into equities — unless the Fed is forced into aggressive rate cuts that push yields back toward zero.
