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Fund Commentary

 
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Prime Obligations Portfolio

as of 6/30/17

Fund Commentary

With June’s 25 basis point (0.25%) hike in federal funds to the 1.00% to 1.25% range, the Federal Reserve (Fed) has now increased the target for its benchmark rate in each of the last three quarters. The Fed stated that the committee “is monitoring developments closely,” as they expect inflation to fall below their 2% mandate in the near term. The “dot plot” reflecting individual committee member forecasts indicates that one additional hike is likely in 2017. In addition, the Fed confirmed plans to embark on balance sheet normalization this year. Initially, $6 billion in Treasuries and $4 billion in mortgage-backed securities will be allowed to roll off each month, with these amounts increasing every third month until the monthly reductions reach $30 billion and $20 billion, respectively. According to the Fed, after a year of tapering its balance sheet in this fashion, the impact will essentially be half that of a 25 basis point (0.25%) rate hike.

Consumer confidence remained high in the quarter, while retail sales were softer than expected. The labor market continued to strengthen, despite continued low wage inflation. The Fed’s preferred measure of inflation dropped to 1.4% with the May reading. Fed Chair Yellen believes the weaker inflation data is largely attributable to falling wireless and prescription drug prices.

The Portfolio’s return for the second quarter was 0.26%. We continue to be positioned conservatively, with a neutral stance with respect to duration and the direction of interest rates. Liquidity and principal preservation remain our primary objectives.

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An investment in the Money Market Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Funds.

Please carefully read the summary prospectus or prospectus and consider the investment objectives, risks, charges and expenses of Northern Institutional Funds before investing. Call 800-637-1380 to obtain a summary prospectus or prospectus, which contains this and other information about the Funds.

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