Life Without ZIRP Spells RIR: Rising Interest Rates

A close-up of a foot pedalDescription automatically generated

In response to the 2008 stock market and real estate crash, the Federal Reserve stimulated the economy by reducing interest rates to (almost) zero under its ZIRP – Zero Interest Rate Policy. It “printed money” that amazingly did not bring serious inflation, yet.

Quantitative Easing (QE) worked. The economy chugged ahead without a recession and the stock market skyrocketed with its longest bull market ever. Mission accomplished, despite the acceleration of QE in the face of COVID.

So, the Fed took its foot off the ZIRP brake in 2022. Here’s the Fed’s balance sheet journey so far. The balance sheet is decreasing as bonds mature without being replaced.