Are the Record Flows for Traditional and Crypto ETFs Reducing the Power of the Fed?

Record-breaking flows into exchange-traded funds may be reshaping markets in ways that even the Federal Reserve can’t ￰0￱ data show U. S.-listed ETFs have become a dominant force in capital ￰1￱ to a Friday press release by ETFGI, an independent consultancy, assets invested in ￰2￱ hit a record $12.19 trillion at the end of August, up from $10.35 trillion at the close of 2024. Bloomberg, which highlighted the surge on Friday, noted the flows are challenging the traditional influence of the Federal ￰3￱ poured $120.65 billion into ETFs during August alone, lifting year-to-date inflows to $799 billion — the highest on ￰4￱ comparison, the prior full-year record was $643 billion in ￰5￱ growth is concentrated among the biggest ￰6￱ leads with $3.64 trillion in assets, followed closely by Vanguard with $3.52 trillion and State Street’s SPDR family at $1.68 trillion.

Together, those three firms control nearly three-quarters of the ￰7￱ ￰8￱ ETFs drew the largest share of August inflows at $42 billion, while fixed-income funds added $32 billion and commodity ETFs nearly $5 billion. Crypto-linked ETFs are now a meaningful piece of the ￰9￱ from SoSoValue show U. S.-listed spot bitcoin and ether ETFs manage more than $120 billion combined, led by BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Trust (FBTC). Bitcoin ETFs alone account for more than $100 billion, equal to about 4% of bitcoin’s $2.1 trillion market ￰10￱ ETFs add another $20 billion, despite launching only earlier this ￰11￱ surge underscores how ETFs — traditional and crypto alike — have become the vehicle of choice for investors of all ￰12￱ many, the flows are ￰13￱ the U.

S., much of the cash comes from retirement accounts known as 401(k)s, where workers put aside part of every paycheck. A growing share of that money goes into “target-date funds.” These funds automatically shift investments — moving gradually from stocks into bonds — as savers approach retirement ￰14￱ portfolios and robo-advisers follow similar rules, automatically directing flows into ETFs without investors making day-to-day ￰15￱ described this as an “autopilot” effect: every two weeks, millions of workers’ contributions are funneled into index funds that buy the same baskets of stocks , regardless of valuations, headlines or Fed ￰16￱ cited by Bloomberg say this steady demand helps explain why ￰17￱ indexes keep climbing even as data on jobs and inflation show signs of ￰18￱ trend raises questions about the Fed’s influence.

Traditionally, interest rate cuts or hikes sent strong signals that rippled through stocks, bonds, and ￰19￱ rates typically encouraged risk-taking, while higher rates reined it ￰20￱ with ETFs absorbing hundreds of billions of dollars on a set schedule, markets may be less sensitive to central bank ￰21￱ tension is especially clear this ￰22￱ the Fed expected to cut rates by a quarter point on Sept. 17, stocks sit near record highs and gold trades above $3,600 an ounce. Bitcoin, meanwhile, is trading at around $116,000, not far from its all-time high of $124,000 set in mid August. Stock, bond and crypto ETFs have seen strong inflows, suggesting investors are positioning for easier money — but also reflecting a structural tide of passive ￰23￱ told Bloomberg the rise of ETFs has lowered costs and broadened access to ￰24￱ critics quoted in the same report warn that the sheer scale of inflows could amplify volatility if redemptions cluster in a downturn, since ETFs move whole baskets of securities at ￰25￱ Bloomberg put it, this “perpetual machine” of passive investing may be reshaping markets in ways that even the central bank struggles to counter.