As interest rates push upwards worldwide, money market funds seem to be enjoying a comeback. With the Fed determined to contain any inflationary worries, can investors look forward to some positive real returns?
As interest rates have generally moved higher across the globe, there appears to be renewed interest in money market funds. Given the tight investment parameters that an AAA-rated money market fund must adhere to, returns are inextricably linked to central bank administered rates. Focusing in particular upon the US, the Federal Funds Target Rate stood at 1% between June 2003 and June 2004. Even before fees, such low level of nominal return left investors with negative real returns. However, as concern about disinflation turned to fears of inflation, the Fed acted to calm price pressure...
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