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.
BREAKING DOWN 'Zero-Bound'
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.