what does it mean when the fed cuts rates

When the Federal Reserve (the Fed) cuts interest rates, it means the central bank is lowering its target for the federal funds rate, which is the rate banks charge each other for overnight lending. This decision aims to make borrowing cheaper for consumers and businesses, thereby encouraging spending and investment to stimulate economic growth. A rate cut is often used as a tool to support a weakening economy or labor market and can also be a response to slower inflation control. Lower interest rates typically result in reduced borrowing costs for loans, credit cards, and mortgages, making it less expensive for people and companies to take out loans. However, it can also mean lower returns on savings accounts and fixed-income investments. The Fed cuts rates when it seeks to boost employment and economic activity, but if rates stay too low for too long, there is a risk of higher inflation or excessive risk-taking by investors. The recent Fed rate cut (as of September 2025) lowered the federal funds rate to a range of 4% to 4.25%, the first cut since late 2024, in response to a slowing job market and inflation that remains somewhat above the Fed's 2% target. This move is expected to help reduce borrowing costs across the economy, but the impact may be modest initially, with potentially more cuts planned later in the year to further stimulate growth.