NU Online News Service, April 25, 2005, 10:25 a.m. EDT

Portfolio managers of rated money market funds predict the Fed Funds rate will continue to rise to up to 4.25% by year-end from the current 2.75%, according to a report from Standard & Poor’s Ratings Services, New York.[@@]

S&P has raised its Fed Funds year-end target rate to the 4% to 4.5% range. It predicts that the Fed may start raising rates by 0.5% at a time as the economy heats up and inflation accelerates.

“The average taxable rated money market fund yielded only 0.59% a year ago, and that figure has almost quadrupled to 2.19% now,” notes S&P fund analyst Joel Friedman. “With money market fund yields on the rise, portfolio managers are breathing a sigh of relief, but this does not mean the search for higher yields has ended.”