The Federal Reserve’s interest rate cuts influence borrowing costs, savings, and inflation. Experts explain how the latest adjustment could affect U.S. consumers, businesses, and the broader economy.

Washington

Federal Reserve Chairman Jerome Powell described the current economic situation as unusual, citing persistent inflation and slow job growth. Economist Wafa Hakim Ormen noted that fluctuating tariff policies are contributing to inflation's resistance to reaching the 2% benchmark, while uncertainty in the job market is leading to slower investment and hiring.

A Federal Reserve rate cut is intended to stimulate investment and employment by lowering borrowing costs for consumers and businesses. However, experts caution that lowering rates during periods of inflation can be risky, as seen during the pandemic and the 2008 financial crisis. While rate cuts have sometimes helped the economy rebound, such as after the dot-com bust, they are not a guaranteed solution and are best viewed as a tool to stabilize the economy rather than a cure-all.

What a Fed rate cut means for you and the U.S. economy

Federal Reserve Chairman Jerome Powell called the current economic situation unusual. What makes it unusual is first that inflation has been a little bit stubborn. Economist Wafa Hakim Ormen said wildly fluctuating tariff policies are preventing the inflation rate to drop to the 2% benchmark. The second factor is slow job growth. We're starting to see some weakening and there are different sources of uncertainty right now in the job market. The uncertainty is leading to slower investment and hiring, hence the rare cut, a tool used to boost investment and employment. In the short term, consumers and businesses are going to see better rates for most things from mortgages to auto loans, but it can also drive up inflation, like during the pandemic. On a long-term basis, it's dangerous, I will say, to lower rates when you have inflation going on. And that's historically what we don't do. And we got into some of the mess that we got into in the pandemic. Another instance when the Fed slashed rates to near zero was during the global financial crisis in 2008. Despite aggressive cuts, the Federal Reserve wasn't able to prevent a recession. That was a perfect storm, which we don't have today. And that storm was short sales and foreclosures at mass unemployment that was that was super heavy. But during the dot-com bust in the 2000s, the rate cut did what regulators hoped. The U.S. GDP rebounded by more than 2% within a few years. In the end, it's a tool to help stabilize the economy, not a remedy. I think the crucial thing, businesses need some stability and the ability to plan for the long term in order to invest.

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London

Middle East Conflict

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Missoula

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Atlanta

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New York

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Haar Road

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Beijing

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Jerusalem

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Utah County

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Windsor

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Doha

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Caracas

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Washington County

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