Zero-Bound

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Federal Reserve Bank

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

    The interest rate at which a depository institution lends funds ...
  3. Ben Bernanke

    The chairman of the board of governors of the U.S. Federal Reserve. ...
  4. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  5. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. How Interest Rates Affect The Stock ...
    Investing Basics

    How Interest Rates Affect The Stock ...

  2. How The U.S. Government Formulates Monetary ...
    Personal Finance

    How The U.S. Government Formulates Monetary ...

  3. How The Federal Reserve Manages Money ...
    Personal Finance

    How The Federal Reserve Manages Money ...

  4. How The Federal Reserve Was Formed
    Personal Finance

    How The Federal Reserve Was Formed

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center