Money-Market Funds Hunker Down as Fed's Rate Path Stays Murky

US money-market funds are moving cash closer to home, favouring ultra-short holdings and trimming exposure to anything carrying even modest interest-rate risk, as managers navigate an unusually uncertain outlook for Federal Reserve policy. The weighted average maturity of fund holdings has fallen to about 40 days, down from 45 days in mid-May, according to industry tracker Crane Data. Managers have channelled more cash into overnight repurchase agreements and short-dated securities, while increasing allocations to floating-rate agency and Treasury debt, whose yields reset quickly if rates move. Exposure to Treasury bills has edged lower even as the government ramps up issuance. The defensive positioning reflects a market caught between competing signals: the Fed held its benchmark rate steady at its June meeting but leaned hawkish, with projections pointing to a possible increase later in the year, while softer labour data has kept the door open to an eventual cut. By keeping maturities short, funds preserve flexibility to reinvest quickly at higher yields if the Fed tightens, while limiting losses if the outlook shifts again. The stance illustrates how policy ambiguity ripples into the plumbing of short-term funding markets.