What does “0% interest rate” mean and how does it help the economy?
In:
The FED loans out money to banks. They want the banks to go do something with this money and/or for them to behave themselves by punishing them for not having enough over-night cash as is the rules. The higher the overnight rate, the more incentive to play by the rules. The higher the longer-term loan/bond/whatnot rate is, the more the fed thinks the bank can make the money grow.
In a 0% scenario, they’re not looking for growth, they just want the banks to survive. The banks aren’t punished for not having enough cash on hand at the end of the night.
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