Marginal Margins

The combination of falling global and tepid US growth has resulted in very low long-run inflation expectations which has caused long-term interest rates to continue falling. Moreover, the Fed will soon raise short-term rates. This will marginally reduce bank incentives to lend, as they borrow short and lend long. The average US bank net interest margin has fallen from 3.83% in 2010 to 3% today, its lowest level in decades.