I know they meet tomorrow and people are freaking out. Someone I know said it could be a catastrophic economic disaster based on their decisions. My question is…..what? I don’t get any of it at all. I’ve read articles and am trying to understand. What is a fed rate cut? How is that bad? What would it do? How would it cause an economic disaster? How would a rate cut lead to a recession?
Clearly, math and economics are not my strong suits and I want to be as informed as possible.
Thanks!
In: Economics
Ultra simplified version. Lower rates = more business growth but at the cost of a potential to raise inflation
Businesses want more growth so want low rates. But the government needs to keep inflation in check, its a balance. The rates rose a ton during covid to try to decrease inflation, and it worked, now they are coming back down as inflation has significantly decreased and is around 3% (A 2%-3% inflation is great, in fall 2022 during covid, inflation was ~8%!) So now that were’ at about 3%, everyone is saying rates are gonna go down.
Whoever your “friend” is probably has no concept what they are talking about, and rate changes are usually very minor at a time, and since they are so small, there is just about zero chance there could ever be an “economic disaster” from a tiny rate change (rate changes are usually a quarter point, thats a 0.25% change, rarely a half point 0.5% change) These are small. They are small on purpose. So that there aren’t big shocks or changes
The actual economics behind this are much more complicated, but for most people its totally irrelvant
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