(Reuters) - Wall Street executives at the Reuters Next conference in New York expect a $7-trillion cash pile that proved invulnerable to falling interest rates in 2024 to start melting next year as easier monetary policy tempts clients out of the ultra-conservative asset class. 

So far, such hopes have been in vain. Cash in money markets rose by about $824 billion this year, according to Crane Data, dashing expectations it would find a home in stocks or bonds as the Federal Reserve began cutting rates.

Proponents of the asset class have said they are happy earning rates of around 4% - far above the near-zero return cash was paying only a few years ago - with comparatively little risk. But sitting on the sidelines has come at a cost: the S&P 500 is up around 27% this year, gold is up about 30% and the Russell 2000 Index of smallcap companies is up more than 17%.

Cash in money markets stood at $7.124 trillion as of Dec. 5, according to Crane Data.

Some on Wall Street believe a portion could be redeployed in 2025 as rate cuts shrink money-market yields and the opportunity cost of staying out of stocks and bond grows.

"The amount of cash, the amount of bank deposits and money markets, that exists right now is shocking," said Rob Goldstein, BlackRock's chief operating officer, in an interview at Reuters NEXT on Tuesday. "Money is going to come into the capital markets, both public and private."

Futures tied to the Fed funds rate show investors pricing 85 basis points in cuts by December 2025. A U.S. inflation report on Wednesday cemented expectations that the Fed will cut rates at its monetary policy meeting next week, sending stocks to fresh records. 

OPPORTUNITY COST

For holders of cash, "there is an opportunity cost at some stage," said Kate El-Hillow, global chief investment officer at Russell Investments, during a Reuters Next panel. 

El-Hillow cited securitized assets as one example of an income-generating investment that could be preferable to cash, in part because of the potential to earn higher rates than money markets. 

Stocks have beaten cash 86% of the time over all 10-year periods tracked by strategists at UBS Global Wealth Management, while the probability of bonds outperforming cash in the same periods was 85%, a study by the bank showed.

Meghan Graper, global head of debt capital markets at Barclays, said Fed cuts could help push money-market investors into longer-duration bonds if short-term yields fall below longer-term ones.

"That's a sizable amount of cash," she said. "It could start to extend out into the front-end maturities, and also the belly of the curve."

Of course, there is little guarantee inflation will ease enough for the Fed to cut rates as much as the market currently expects. 

While November consumer price data reported this week was in line with economists' expectations, it nevertheless showed that progress in lowering inflation has stalled. 

More broadly, many investors expect interest rates to remain elevated compared to the previous decade, bolstering the long-term attractiveness of cash.

"I almost think it's a satisfying thing that you could own cash and you could be getting a return that would have been unimaginable a few years ago," BlackRock's Goldstein conceded.

"It's an opportunity for the people holding the cash," Goldstein said, "and I think it's an opportunity for those who could come up with and demonstrate better uses of cash."