The End of the Zero Interest-Rate Policy Era

The Federal Reserve held its policy rate near zero from December 2008 to December 2015, and again from March 2020 through March 2022, according to the FOMC's historical statements. The Bank of Canada's overnight rate followed a similar shape, with a record low of 0.25% set in March 2020. That fifteen-year stretch, broken by the tightening cycle that began in 2022, is the regime the financial system has now exited. The investment math that worked in it does not all carry forward.

The most direct evidence sits on company balance sheets. The Bank for International Settlements and the IMF's Global Financial Stability Report have both flagged the so-called maturity wall: a wave of corporate bonds and leveraged loans, issued at coupons set when policy rates were near zero, that come due over the next several years. Refinancing at current rates does not threaten investment-grade issuers as much as it tests the high-yield and leveraged-loan markets, where some borrowers have interest coverage ratios that the FDIC and the Office of the Comptroller of the Currency have called "stretched" in recent supervisory remarks.

What changes for the 60/40 portfolio

For a generation of advisers and retirees, the 60/40 portfolio went through two distinct phases. From roughly 2009 through 2021, the bond side was a drag on yield but a cushion on volatility. From 2022 onward, with two- and five-year US Treasuries paying yields not seen since before the financial crisis, the same allocation looks different. Series data published by the Federal Reserve and the Federal Reserve Bank of St. Louis shows 2-year Treasury yields holding in the 4% to 5% range through 2024, and Canadian 2-year yields tracking in a similar band. A reasonable cash-like return is, for the first time in a long time, easy to find.

The flip side is what economists call the discount-rate effect on equities. Higher risk-free rates lower the present value of cash flows expected far in the future, which is why long-duration growth stocks have generally traded at lower multiples than they did in 2020 and 2021. The same effect applies, with a lag, to private valuations; venture capital fundraising data from PitchBook and the National Venture Capital Association has shown a sharp correction in late-stage rounds since 2022.

Households and the cost of credit

Consumer credit feels the shift faster than corporate credit does. The Federal Reserve's G.19 release tracks revolving credit card rates assessed on interest-bearing accounts, which moved to record levels in the most recent readings, above 21% in some quarterly data. In Canada, the Bank of Canada's reports on household indebtedness and the OSFI guideline on mortgage underwriting (B-20) have both highlighted the pressure on mortgage renewals as five-year fixed mortgages originated in the low-rate window come up for reset in 2025 and 2026.

Whether that pressure tips into something larger depends on the labour market more than on the central banks. The Bureau of Labor Statistics and Statistics Canada both still report unemployment rates that, by historical standards, look low. The Bank of Canada's Senior Loan Officer Survey and the Fed's Senior Loan Officer Opinion Survey have shown banks tightening lending standards on commercial real estate and consumer credit since 2022, which is the channel through which rate increases usually slow the economy.

“Rates are not high by historical standards. They are high relative to what borrowers and investors structured their balance sheets around in the last decade.”

Not a forecast

Nothing about the end of the zero-rate era guarantees the direction of the next move. The Fed's own dot plot, released alongside each Summary of Economic Projections, shows wide dispersion among committee members on where rates settle by the end of 2026, and that dispersion has if anything widened in recent meetings. Investors who plan around a single number, in either direction, are taking a bigger view than the central bank itself is willing to take.

This is general reporting based on publicly available central-bank and statistical-agency data. Rates, yields and policy stances change frequently; readers should verify current figures from the relevant agencies before acting on them, and consult a licensed adviser for decisions specific to their own circumstances.