Ask a Fool: Why Would the Federal Reserve Cut Interest Rates Now?
The market is expecting an average of three 25-basis-point federal funds rate cuts by the end of 2019. At first glance, this may seem odd. After all, rate cuts generally coincide with some sort of economic weakness. But GDP growth is strong, the stock market just hit a fresh all-time high, and the unemployment rate in the U.S. is 3.7%, which is extremely low in a historical context.
Conversely, the last time the Fed began a rate-cut cycle (2007), unemployment had started to tick upwards and there were some major signs that the economy was beginning to deteriorate. For example, housing prices had already fallen significantly by the time the Fed made its first move.
To understand why a rate cut makes sense this time around, it's important to realize that the Fed has a dual mandate: to maximize employment and to maintain inflation at a desirable level.
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