When the Federal Reserve cuts interest rates, it means it lowers the federal funds target rate, which is the interest rate banks charge each other for overnight lending. This rate cut influences various other interest rates, including those for consumer loans, mortgages, and credit cards, often making borrowing cheaper for businesses and consumers. The primary goal of cutting rates is to stimulate economic growth by encouraging spending and investment, particularly when the economy slows or the labor market weakens. However, rate cuts can also raise risks of inflation and encourage excessive risk-taking by investors. The recent Fed rate cut in September 2025 lowered the target range by 0.25 percentage points to 4%–4.25%, the first cut since late 2024, aiming to address slower job growth and support maximum employment while keeping inflation around the 2% target.