Zeev's Turnips Talk Politics (ZTTP)

[sarai]

Less Than Zero
How next week's Fed interest-rate cut will jostle $2 trillion in money-market investments.
By Daniel Gross
Posted Friday, June 20, 2003, at 1:39 PM PT

http://slate.msn.com/id/2084672/

"Such a cut is supposed to do what the Fed's 12 other cuts since January 2001 were supposed to have done: reduce borrowing costs, stimulate the economy, and encourage investors to move cash out of low-yielding bonds and into stocks. The Fed is taking interests rates to depths unseen. Not only do the rates raise the danger of a liquidity trap and deflation, the coming attempt to lower the rates could jeopardize a crucial but frequently neglected $2 trillion corner of the investment world: money-market mutual funds. As Greg Ip notes in today's Wall Street Journal lead, "too low a rate would imperil money-market mutual funds, for instance, because they might no longer clear enough money to cover expenses and pay a return to investors."