Insights & Ideas

Taxable Money Market Commentary

by Senior Portfolio Manager Patricia Larkin

Patricia Larkin

This is Patricia Larkin with a Money Market Commentary for October, 2016. 

  • The United States economy continues to exhibit modest growth. The September employment report, showing a gain of 156,000 jobs, was slightly below the consensus forecast, but still strong enough to show employers remain comfortable in adding new workers. The weekly unemployment claims echo this data with claims near a 40-year low. While it is too soon to have final figures, both the New York and Atlanta Federal Reserve Bank’s (the “Fed”) forecasts are for a moderate gain of 2.2% for the third quarter. Two other closely watched indicators of consumer confidence, auto and home sales, while off peak levels, are also signaling continued strength on the part of the U.S. consumer.

  • Following their September 21 meeting, the Federal Reserve Open Market Committee announced no change in interest rates. While stating that the case for tightening had strengthened, the majority of the Committee decided to wait for further evidence before increasing the overnight federal funds rate. It should be noted, however, that three members of the Committee dissented and voted for an immediate increase in the Fed funds rate.

  • The presidential election will be front and center as we enter the fourth quarter. It would not be surprising to see business decision-makers and consumers delay major purchasing and investment decisions until after the election. Market participants and Fed policy-makers will be closely watching for signs of economic weakness. While the Fed has two more policy-making meetings scheduled for the remainder of the year, the November one is just six days before the election. Barring a major economic event, we do not expect the Fed to make any policy move at that meeting, leaving the December 14 meeting as a more likely choice for an interest rate increase.

  • Money market reform has gone very smoothly, to date. The migration of many funds and investors from prime funds into Treasury and government funds has contributed to an increase in LIBOR rates as prime borrowers adjusted to the new supply levels being provided by a significantly smaller prime money fund universe.

The statements expressed in this commentary are those of the author as of the date of the article and do not necessarily represent the views of Dreyfus or its affiliates. The views expressed are subject to change rapidly as economic and market conditions dictate, and the statements in the commentary should not be construed as an offer to sell or a solicitation to buy any security. The commentary is provided as a general market overview and should not be considered investment advice or predictive of future market performance. Contact Dreyfus or your advisor for more current information.

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