what does it mean that the fed cut rates

When the Federal Reserve (the Fed) cuts interest rates, it lowers the target for its key lending rate, specifically the federal funds rate, which is the rate banks charge each other for overnight loans. This move aims to reduce borrowing costs across the economy, encouraging businesses and consumers to borrow and spend more. As a result, it can stimulate economic growth and help boost employment when the economy is slowing down or facing weak job growth. This rate cut also leads to lower interest rates on various loans, such as credit cards, mortgages, and auto loans, making debt cheaper to service. However, it also means lower returns on savings accounts and fixed-income investments. The Fed’s decision to cut rates usually signals that it wants to support the economy in the face of slower growth or a cooling labor market, even if inflation remains somewhat above the Fed's 2% target. It is often seen as a response to economic challenges that require monetary policy to become more accommodative to achieve stable prices and full employment. In summary, a Fed rate cut means cheaper credit, an attempt to stimulate economic activity, and a balancing act between controlling inflation and supporting growth.