Federal Reserve sets short term interest rates throughout most of the market through the Federal Funds Rate (FFR). It dropped the FFR to ~0% after the financial crisis, but instituted a brand new policy: 0.25% interest on reserves held at the bank in order to get banks to be less risky and loan against more safe assets that they keep with the treasury.<p>Conventional economic thinking is that low interest rates spur economic activity, as individuals and institutions that would have once parked the money in safe government bonds and earned a return on the interest would instead be forced to lend out into the real economy to find a decent rate of return.<p>The problem is that the money supply is too large due to QE and there is not enough demand for viable, long-term projects such as infrastructure, R&amp;D, education.<p>Plus the government continues to run into the debt ceiling. If it were to raise interest rates on its bonds, it would be paying out more on its already enormous debt.