If the lowering of the federal reserve rate is a good thing for the economy, why not lower it to 0%?

Answer 1

The Federal reserve sets a couple rates so I'm not sure which one you're talking about. Just as a quick tutorial, at the end of the day, each bank is required to have a certain amount cash in their bank. That's the reserve requirement rate. A bank has to make sure they hit this amount of money at the end of the day. Through normal transactions, some will have more than the requirement and some will have less so they borrow money to make the requirement or the lend it to make some money off their extra. The interest rate the banks charge each other on this federal funds rate and that's probably the most discussed rate. As a last resort though, the banks will borrow from the fed directly which is called the discount rate and since its a last resort, it's typically a little higher than the federal funds rate.

To be as simple as possible, we have the reserve requirements so banks don't run out of money if a bunch of people want their money back early. We don't set the federal funds to 0% because that would cause massive inflation (someone else already discussed this more thoroughly), and we don't have discount rate at 0 because we keep it above the federal funds rate.

Answer 2

But being able to ADJUST the reserve rate is a good thing, it may just be lowering it a bit today fits with government opinion of the day to fit their economic priorities.

Answer 3

Part of the Fed mission is to find that magic point that stimulates the economy without overheating it and causing inflation.

If borrowing of money because too cheap, there would be too much demand. Demand would outstrip supply causing prices to rise.

That's the Econ 101 answer anyway.

Answer 4

Those loaning the money cannot make money off of 0%

Answer 5

pretty dumb question. 1st guy nailed it.