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 cases, according to Lehman Brothers, The Wall Street Journal reports.

"At its core, monetary easing is an attempt to penalize safe saving," according to a Lehman report the Journal quoted. "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.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.