The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates

I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve's forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB. Second, during the 2008-15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium- and longer-term interest rates and the economy. Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated. I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates