With the Fed fund rate now at 5.25%. many experts believe money market funds will soon reach yields of 5%, and when that happens, investors might move assets from equity funds to money market funds, the Orange County Register reports.
"I think 5% holds some psychological significance," said Peter Crane, president of Crane Data. "In this case it's going to be doubly powerful because rates were so low. Five percent is the magic number. That giant sucking sound you hear is money moving into cash and CDs." In fact, Tim Huyck, a portfolio manager with Fidelity, said the company has already begun advertising its money market funds for the first time in a long while.
Money market funds track the Fed fund rate closely. Although it was raised last week and money market funds typically take one to two months to catch up to the Fed fund rate, David Glocke, a portfolio manager at Vanguard, expects money market funds will reach 5% within a few weeks. Some believe the Fed fund rate could reach as high as 6%.