The United States entered a deep recession at the end of 2007. The Fed under Ben Bernanke used aggressive monetary policy to prevent the recession from becoming another Great Depression. The Fed Funds target rate was 5.25 percent in the fall of 2007; by mid-2008, it stood at 2 percent; and in January 2009, it went to a range of 0 – 0.25 percent, where it still stood through mid-2015.

Lower interest rates reduce the cost of borrowing and encourage firms to borrow and invest. They also have an effect on the value of the bonds (private and government) outstanding in the economy. Explain briefly but clearly why the value of bonds changes when interest rates change. Go to federalreserve.gov, click on “Economic Research & Data,” and click on “Flow of Funds.” Look at the most recent release and find balance sheet table B.100. How big is the value of Credit Market Instruments held by households?