Money Funds Won't Deter Fed from More Rate Cuts, Lehman Economist Predicts
April 14, 2003
Speculation that the Federal Reserve might be constrained in cutting U.S. interest rates much further below 1.25% because of the damage it could do to money market mutual funds greatly overstates the case, according to a reported Lehman Brothers report.
"At its core, monetary easing is an attempt to penalize safe saving," according to Lehman economist Joseph Abate, in a note to clients. "The lower the return on holding money in super-safe assets, the more likely that people will buy riskier assets, such as corporate debt and stocks - or better yet, spend on goods and services."
This is one reason why Lehman expects the Fed to cut rates to just 50 basis points by June.
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