BofA’s Hartnett says cash stays on the sidelines until the Fed cuts for longer

Investors have been parking more money in cash-like products, and Bank of America’s chief investment strategist for global equities, Michael Hartnett, said the behavior will likely persist until the Federal Reserve delivers cuts that are both clear and durable.

In a recent market commentary circulated through Yahoo Finance, Hartnett pointed to strong demand for money market funds, which are investment vehicles that hold short-term, high-quality securities and typically offer a cash-like return. The report said money market funds recorded their biggest weekly inflow since April 2020, reversing an earlier outflow from the prior week.

Hartnett’s broader message was that the current cash buildup is not simply a short-term timing choice. He argued that investors will not broadly redeploy cash until the Fed’s policy trajectory makes investors confident that the lower-rate environment is set to last, rather than being viewed as a brief pause in restrictive policy.

The strategist’s framing centered on the idea that rate cuts change investor behavior only when they are expected to continue. If cuts are expected to be delayed, uncertain, or quickly reversed, cash tends to remain competitive versus other instruments, especially during periods of market volatility.

Money market fund flows are often used by market participants as a real-time proxy for investor caution. Large inflows can indicate that households, corporations, and advisors are choosing liquidity and capital preservation, waiting for clearer indicates before adding risk exposure such as equities and credit.

Bank of America did not provide additional specifics in the referenced Yahoo Finance post, such as the strategist’s quantitative assumptions for the timing or magnitude of future Fed cuts, or any detailed scenario analysis tied to the flows. The commentary also did not break out whether the inflows were driven more by retail investors, institutional investors, or both.

For financial markets, the implication is straightforward but not fully settled. If investors keep treating the current environment as one where cash remains attractive, it could continue to dampen inflows into risk assets, even when stock or bond markets show pockets of strength.

What to watch next is whether the money market fund inflow pattern continues beyond a one-week reversal, and whether market pricing increasingly reflects sustained Fed easing. A sustained shift in expectations could be The announcement Hartnett is describing, pushing investors to move cash from liquidity funds toward longer-duration assets.