Powell vs. the $7 Trillion Wall of Cash: Sell-the-News Risk or the Spark for a Year-End Chase?

Headed into the Fed, the tape has that unmistakable “priced-to-like-it” sheen—great setup for a classic sell-the-news, but not quite the euphoric pile-on that usually precedes a real accident.

Markets have rallied into the meeting on heightened dovish hopes: three cuts penciled for 2025, more in 2026, and a tidy “recalibration” narrative to match. That’s exactly why the first 24–48 hours after a cut can be tricky. History says equities often sag after the initial move when investors have already front-run the good news; Trivariate’s Adam Parker has noted the S&P 500 typically posts a negative first-month return after a cut before re-accelerating over 12 months, a dynamic tied to “buy the rumor, sell the news” mechanics.

Still, positioning doesn’t scream “too hot.” Bank of America's September Fund Manager Survey showed a net 28% overweight to equities (a seven-month high), but that sits alongside a record 58% who call stocks overvalued and cash at 3.9%—optimistic, not manic. The survey’s composite sentiment is the strongest since February, yet far from blow-off territory. Translation: risk is on, but allocators haven’t thrown risk controls out the window. Michael Hartnett’s read is that rising growth expectations keep the bull case in charge—a view consistent with the survey’s sharp rebound in macro optimism.

The elephant on the sidelines, of course, is the $7.30T parked in money-market funds . Even if the Fed cuts, MMF yields tend to drift down with a lag (as short paper rolls), not collapse—so flows rarely stampede. ICI’s latest weekly tallies show assets at fresh highs into September, reinforcing the idea that cash has been sticky even as equities make new records. And the income on offer is still respectable by recent standards: Crane Data’s 7-day yield gauge sits near ~4.1%, a powerful behavioral anchor for institutions and retail alike.

That brings us to the central question for Wednesday: What would actually pry cash off the bench? If Chair Powell frames a 25 bp move as recalibration—policy still restrictive, inflation progress intact, growth resilient—then the front end should ease modestly, curves can steepen at the margin, and some capital can trickle from MMFs into IG credit, quality cyclicals, or even longer duration. In other words, the “wall of cash” becomes a tailwind, not a catalyst. Michael Hartnett would argue the growth upgrade helps that rotation, and the BofA survey shows managers already tilting that way.

But if the Fed’s tone tilts toward growth anxiety—dots signaling fewer cuts, or Powell leaning heavily on soft labor data—then the message becomes “we’re cutting because the economy needs help.” In that world, cash is comfort food. Peter Crane has been blunt on this point: the Wall Street fantasy that MMFs will empty en masse when the Fed snips rates is just that—“Dream on Wall Street… the $7 trillion is not going anywhere but up.” He notes the money-fund base is now majority institutional/corporate, and those balances are driven by liquidity policy as much as yields. Even if yields fade toward 3% over time, that still dwarfs many deposit rates; convenience and governance keep a big chunk glued in place.

The nuance matters because how MMF cash behaves will color every post-FOMC trade. A recalibration cut with steady GDP and cooler inflation lets risk breathe: cyclicals and financials like the gentle steepener; quality growth can live with it, even if multiples wobble for a few days. A growth-scare cut does the opposite: curves flatten, defensives lead, and MMFs gain share as investors wait out the fog. Either way, remember the mechanics: money-fund yields step down over 1–2 statement cycles, not overnight, so any rotation is a trickle, not a firehose—especially with year-end liquidity windows approaching.

Sentiment and positioning are the tiebreakers. Yes, equity allocations have risen, but they’re rising into valuation worries, not ignoring them. That leaves room for disappointment (Powell under-delivers on dovishness) and room for reinforcement (Powell validates “restrictive, not recessionary”). The near-term macro calendar isn’t helping either: the October 1 government-funding deadline is a perfectly capable headline headwind if markets are already twitchy.

Bottom line: a sell-the-news wobble is absolutely on the table if the Fed bungles the message or hints at panic. But this isn’t an “everybody long, eyes closed” tape—survey data suggest optimism with guardrails, and the MMF mountain is more likely a slow-burn support than an instant rescue squad. If Powell threads the needle—cuts to recalibrate, signals confidence in growth, and keeps the door open to additional easing—equities can absorb a tactical shakeout and still grind higher into year-end. If he doesn’t, cash will keep earning, and patience will keep outperforming FOMO—for a little while longer.