When the Federal Reserve (Fed) cuts interest rates, it means the central bank is lowering its target for the federal funds rate—the rate at which banks lend to each other overnight. This move generally aims to stimulate economic growth by making borrowing cheaper for consumers and businesses. Lower rates reduce the cost of loans and credit, encouraging spending and investment, which can help boost a sluggish economy or address a slowing job market. However, it also means lower returns on savings accounts and can potentially risk increasing inflation if rates are too low for too long.

The recent Fed rate cut reduced the key lending rate by 0.25 percentage points to a range of 4% to 4.25%, the lowest since late 2022. This was the first rate cut in nine months, signaling the Fed's response to signs of a weakening labor market amid inflation that remains above its 2% target. The cut is expected to lead to modest decreases in borrowing costs such as credit cards and some loans but may not immediately ease day-to-day expenses for most Americans due to still historically high rates overall.

In summary, a Fed rate cut means cheaper credit and loans, encouraging economic activity, but also means less interest income on savings. The Fed uses this tool to balance promoting growth and controlling inflation while responding to economic conditions like employment trends.