The Fed cuts interest rates mainly to support economic growth and keep unemployment from rising too much when the economy slows. It uses rate cuts as part of its job to balance stable prices (inflation) with maximum employment.

Fed’s main goals

The Federal Reserve has a “dual mandate”: keep inflation low and stable while promoting maximum sustainable employment. When inflation is under control or falling but the job market and growth start to weaken, the Fed shifts focus toward protecting employment and growth, which often means cutting rates.

Why cutting rates helps

Lowering the federal funds rate makes many types of borrowing cheaper, including business loans, mortgages, and other credit. Cheaper credit encourages businesses to invest and hire and encourages households to spend, which supports demand and helps prevent or soften recessions.

When the Fed tends to cut

The Fed typically cuts rates when data show slowing job growth, rising unemployment risk, or broader economic uncertainty, especially if inflation pressures are easing. Recent examples highlight “risk‑management” cuts, where the Fed trims rates pre‑emptively to avoid a sharper downturn in the labor market while still watching inflation carefully.

What rate cuts signal

A rate cut often signals that policy was relatively “tight” and is being moved closer to a neutral stance so it no longer restrains the economy as much. Markets and households read cuts as a sign the Fed is more worried about growth and jobs than about inflation at that moment, though the Fed usually stresses it is still committed to long‑run price stability.