DEFINITION of 'Zero-Bound'

A situation that occurs when the Federal Reserve has lowered short-term interest rates to zero or nearly zero. When interest rates are this low, new methods of economic stimulus must be examined and implemented.

Zero-bound can also refer to a stock that has negative downward momentum and is expected to eventually move to zero.


As the Federal Reserve lowers interest rates, alternative procedures for monetary stimulus become necessary. Interest rates cannot usually be negative, so once interest rates reach zero or are close to zero, for example, 0.01%, monetary policy has to be altered to continue to stabilize or stimulate the economy.

  1. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  5. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
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