When the Federal Reserve (the Fed) cuts interest rates, it lowers its target for the federal funds rate, which is the rate at which banks lend to each other overnight. This rate influences many other interest rates in the economy, including those for mortgages, credit cards, car loans, and business loans. A rate cut means borrowing costs decrease, encouraging businesses and consumers to borrow and spend more, which can stimulate economic growth. It may also lead to lower returns on savings accounts. The Fed typically cuts rates to address slowing economic growth or a weakening labor market while trying to balance inflation pressures. Recently, the Fed cut rates by 0.25 percentage points to a range of 4% to 4.25%, the first cut since December last year, aiming to support a cooling job market and moderate inflation that remains above its 2% target. Further rate cuts are anticipated later this year. The move is intended to reduce borrowing expenses and encourage hiring but may not significantly change day-to-day finances for average consumers immediately. However, it signals the Fed's intention to stimulate economic activity amid challenges like elevated inflation and slower job growth.