A growing chorus of Wall Street banks now sees the Federal Reserve holding interest rates steady indefinitely, a dramatic shift that is already sending shockwaves through money markets.
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Fed 'Indefinite Hold' View Sparks $122 Billion Cash Rush
The Federal Reserve’s target rate of 3.5% to 3.75% may be permanent, according to new forecasts from major banks, a view that spurred a near-record $122.35 billion inflow to money-market funds last week.
"Uncertainty about the level of shock that the Iran war, tariffs, immigration policy and artificial intelligence will inflict on the labor market and inflation—the Fed’s two main concerns—means the 'tails are fat'," Aditya Bhave, Bank of America's head of economics, and his team wrote in a recent report.
The move into cash accelerated, with the $122.35 billion weekly inflow for the week ended May 6 being the largest since April 2020, according to LSEG data. Yields on 4-week and 16-week Treasury bills are now hovering at 3.67% and 3.69% respectively, closely tracking the Fed's effective rate as rate-cut bets evaporate.
With rate cuts now pushed out to mid-2027 or later by some forecasters, the appeal of cash-like assets over riskier equities could become a long-term trend, potentially slowing corporate investment and reshaping portfolio strategy for years to come. The next Fed meeting is scheduled for June.
Bank of America on Friday pushed its forecast for rate cuts to mid-2027, highlighting a high risk of an “indefinite hold.” The move follows similar calls from Deutsche Bank, which said in a podcast it sees the Fed “on hold indefinitely,” and HSBC, which expects no rate cuts through the end of 2027. This marks a significant reversal from late last year when markets were pricing in aggressive cuts for 2026.
Investors are acting decisively on the "higher-for-longer" rates thesis. Money-market funds, which invest in short-term debt, now offer yields around 3.5% to 3.7%. The iShares 0-3 Month Treasury Bond ETF (SGOV), a popular vehicle for T-bill exposure, saw a record $11.4 billion inflow on a 25-day rolling basis in early April, showing sustained demand for cash-like instruments.
The shift is also visible in the Treasury yield curve. In the second half of last year, yields on T-bills maturing in six to twelve months were lower than the effective federal-funds rate (EFFR), indicating market expectations of imminent rate cuts. Now, those yields are bundling around or even surpassing the EFFR, suggesting some investors see a rate hike as a possibility in the coming year.
This article is for informational purposes only and does not constitute investment advice.
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