This report briefly discusses the impact of low interest rates on financial institutions, focusing on concerns that further reductions in short-term interest rates could impair the profitability of banks and money market mutual funds and thereby affect the flows of finance from households to firms. These concerns have abated because medium and long-term bond yields have risen in recent weeks amid mounting evidence that the economic recovery is gaining steam. Nevertheless, short-term interest rates remain low and are having notable effects on money market mutual funds and banks, on which I will focus today.
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Article provided by Federal Reserve Bank of Dallas in its journal In Depth.