Uneven Distribution of Money Market Fund Assets Raises Economic Concerns

U.S. money market funds have reached an unprecedented level, surpassing $6.357 trillion by the end of 2023. This is a remarkable 93% increase from $3.289 trillion in late 2018. Financial analysts often highlight this massive cash reserve as a positive sign for the U.S. economy, particularly its consumer-driven aspects.

However, a deeper analysis reveals that confidence in this vast accumulation of money is unfounded. The household sector holds 60% of all money market fund shares, but this wealth is heavily concentrated within the top 10% of households. The wealthiest Americans cannot sustain aggregate consumer spending indefinitely, especially when market volatility affects capital and real estate values.

Federal Reserve data shows that the top 1% holds over $1.2 trillion in money market funds, accounting for 32.4% of the household sector’s total. In stark contrast, the bottom 50% holds only $36 billion, a mere 3% of what the top 1% controls.

To put this disparity in perspective, the bottom 50% includes more than 66 million households, while the 99th to 99.9th percentile encompasses just over 1.185 million households, and the top 0.1% includes 133,364 households. Households in the 50th to 90th percentile, about 53 million in number, hold $839 billion, or 22% of household money market funds. The 90th to 99th percentiles, comprising 11.9 million households, control $1.479 trillion, or 39% of household money market funds.

Given this concentration, a small fraction of households have the liquid assets needed to sustain consumption if economic conditions worsen. Consequently, aggregate demand is likely to decline as high prices persist and real disposable incomes stagnate across different wealth groups. Households outside the wealthiest 10% are more likely to reduce spending as their financial resources become constrained.

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