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Why the Federal Reserve Just CUT Interest Rates

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Why the Federal Reserve Just CUT Interest Rates – 7 Tips

In this video we’re going to look at why the Federal Reserve cut interest rates, even though the U.S. economy is performing well.

The Federal Reserve recently announced that it’s cutting interest rates, the first time it’s done so since 2008. Rate cuts generally coincide with some sort of economic weakness, which makes the Fed’s recent decision a bit uncommon.

The last time the Fed began a rate-cut cycle was during the Great Recession. At the time, unemployment had started to tick upwards and there were some major signs that the economy was beginning to fall apart.

For example, housing prices had already fallen significantly by the time the Fed made its first move.

But the Fed’s recent rate cut comes at a time when the U.S. GDP growth is strong and the stock market is at all-time highs. Additionally, the unemployment rate in the U.S. sitting at just 3.7% right now, which is extremely low in a historical context.

So why did the Federal Reserve cut interest rates this time?

To understand why a rate cut makes sense this time around, it’s important to realize that the Fed has a dual mandate: The first is to maximize employment and the second is to maintain inflation at a desirable level.

With the unemployment rate at about 3.7% right now, employment is maximized already. However, inflation has been extremely low — well below the Fed’s 2% target rate.

Which means there’s a solid case to be made that it’s in the economy’s best interest to help sustain the current expansion by cutting rates.

Additionally, global economic growth has started to slow, and the ongoing trade war between the U.S. and China is prompting an elevated level of caution among policymakers.

Some experts think that the Fed might make several rate cuts in order for it to reach its inflation goal.

The bottom line is that the U.S. economy is solid, but the global economy isn’t quite as strong as the Fed would like to see. Cutting interest rates should help inflation start to tick upward and allow the U.S. economy to continue growing.

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36 Comments
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36 Comments

  1. Aaron Michael
    July 17, 2021 at 2:24 am

    The real reason for the rate cut, 20 trillion of outstanding debt. Higher interest rates mean the government has to pull funds from other expenditures to fund interest payments. Usury in disguise. LOL

  2. Randy Herriman
    July 17, 2021 at 2:24 am

    The Fed did not follow their mandate with the last rate cut. Neither employment or inflation is an issue. I do not see that the mandate is to help the rest of the world and the worlds population. Trump pushed them with the hope of another four years in office, my opinion. I would rather see a higher interest rate so there is room for reaction once there is employment or inflation that need to be controlled, or try to control.

  3. Paul Whitman
    July 17, 2021 at 2:24 am

    YES

  4. Amed Sayed
    July 17, 2021 at 2:24 am

    FED created this rigged game and Bernanke is one of the biggest criminal.
    FED will eventually destroy the world

  5. State of Beingness
    July 17, 2021 at 2:24 am

    The reason we almost had the great depression in 2008 was because the FED had extended the tightening cycle too long. Are we going to make the same mistake this time? You can’t look at static levels of economics Statistics like the unemployment rate is and GDP, rather you have to look at the acceleration and the deceleration curves of the underlying inputs into economic demand to see that unless we reduce rates quickly it will be too late. The government bond market is always several steps ahead of the stock market in signaling recession risk and if you look at the inverted yield curve this is what the bond market is telling us: Ease rates now or it will be too late six months from now.

  6. cliff long
    July 17, 2021 at 2:24 am

    There should be no such thing as the federal reserve!

  7. Fye Valentine
    July 17, 2021 at 2:24 am

    Unemployment is not 3.7%

  8. sim laadirman
    July 17, 2021 at 2:24 am

    BTC going up now hahhaha

  9. axeblue
    July 17, 2021 at 2:24 am

    Definitely the right choice.

  10. Jay M
    July 17, 2021 at 2:24 am

    President Trump. We the People are ready to help.
    Give us permission to print money (as gov has to it's Federal Reserve since 1913)
    and we will only charge 1.5% (0.5% less than Fed).
    If we print $4 trillion (as Fed has), hard working people can split the cool $60 billion ($60,000,000,000) in profit with you. usdebtclock.org y

  11. Jay M
    July 17, 2021 at 2:24 am

    According to the Federal Reserve, inflation has been <2% a year. According to the Big Mac Inflation Index, it is >4% per year ($3.47 in July 2008, $5.58 in Jan 2019) even after gov subsidies for meat, dairy and wheat. Trust the Clown (Ronald), not the Fed (money printing arm of the government). usdebtclock.org y
    https://seekingalpha.com/article/4119246-big-mac-index-may-telling-truth-inflation
    https://www.forbes.com/sites/davidmarotta/2013/04/16/big-mac-index-shows-official-cpi-underreports-inflation
    https://capstoneinvest.com/inflation-cpi-and-the-big-mac-taking-a-bite-of-reality

  12. Jennifer Huang
    July 17, 2021 at 2:24 am

    No. because it wont encourage the investment in the mid of uncertainties created by trade war.

  13. Sheepish Dialect
    July 17, 2021 at 2:24 am

    I think it's insane that someone could think controlling the symbol of money is a good idea to effect the mechanics of an economy. It's just stunting the growth of the US $.

  14. Sebas S
    July 17, 2021 at 2:24 am

    How is inflation a good thing??

  15. Sebas S
    July 17, 2021 at 2:24 am

    Houses please go down!!

  16. Dave Collins
    July 17, 2021 at 2:24 am

    Insane to: 1) think the Fed can control an economy 2) that its creation of inflation (i.e. printing money) is desirable.

  17. LYLE BEZILE
    July 17, 2021 at 2:24 am

    NO, I THINK IT WAS NOT CALLED FOR AT THE TIME.

  18. Bridget S
    July 17, 2021 at 2:24 am

    They cut rates bc for the first time in history bc the fed chairman caved tp political pressure from the president. trump has been badgering Powell for weeks.

    This is to prop the economy to make up for stupid mistakes (ie China tarrifs) and for the 2020 election. The problem is, he'll kill the economy and the interest rates will be so low that whatever Dem gets elected will have nowhere to go to bail us out. Invest wisely, it's going to be a rough ride.

  19. Leo
    July 17, 2021 at 2:24 am

    Lowering Interest rates might be a temporary bandage for what is coming , you simply can't pay off debt with more debt. It is harder to acquire cash dollars now , 2020 sounds like a redo movie from 2008 , guess I'm gonna sell both of homes and wait until market goes down again , let's keep playing this game

  20. Bill Waxman
    July 17, 2021 at 2:24 am

    The Fed is undermining its own ability to act if and when the economy starts to tank. This is simply bowing to pressure from Trump who is desperately afraid that things may go south before the election. This is definitely more welfare for the wealthy.

  21. Dan I
    July 17, 2021 at 2:24 am

    ALL fiat money comes to an end.

  22. _ Robbo
    July 17, 2021 at 2:24 am

    There is a global race to negative interest rates. To remain competitive in the short term US had no choice. But in the long term I’m not very confident that this is great move. All cash to be digital once the US hits negative.

  23. Steve Fernandez
    July 17, 2021 at 2:24 am

    This is all bullshit anyone who has done the math knows where in for a crash

  24. Austin Empire
    July 17, 2021 at 2:24 am

    Those of you wanting to know how interest rates work Ray Dalio put a great video on YouTube explaining the the economy machine works worth a watch!

  25. Jay M
    July 17, 2021 at 2:24 am

    Anyone notice there is now more metal in Peter Piper Pizza tokens than in US coins.

  26. Womb Raider
    July 17, 2021 at 2:24 am

    Fed keeps on inflating that bubble. Lol, many people are going to be singing the blues when that bitch pops.

  27. defmos
    July 17, 2021 at 2:24 am

    the fed raise rates too fast and this is just a reversal of their mistake.

  28. Jeff_
    July 17, 2021 at 2:24 am

    Thanks for the update! I like the explanation as to why the Fed might do something like this. It is my understanding, though,that every time the fed cut in the past, a recession soon followed. I also feel that political pressure made this rate happen. In my opinion I don’t feel any cut was warranted at this time.

  29. Scott Hayes
    July 17, 2021 at 2:24 am

    Yes, consumer savings rates will go down a bit, but it means our Fed Govt will have lower interest payments on our massive debt too, and that's a good thing given spending irresponsibility in Washington. We were warned this was coming, hope you bought the right stocks. DGI investor. Thanks Fool for the video.

  30. Lincoln Young
    July 17, 2021 at 2:24 am

    Ha ha ha ha ha, President Trump is the driver, and the FEDERAL RESERVE is the passenger 😂😂😂
    …from this point on, Trump can drive the FED anywhere he wants, and they can't say SHIT about it!!!

  31. Carrie Vogel
    July 17, 2021 at 2:24 am

    Trump wanted the Fed to cut rates. But, many economists, market analyst, and other financial strategist say we have entered a recession already and that it will be worse than 2008. Keeping my toes and fingers crossed this will not happen.

  32. Ross Hanson
    July 17, 2021 at 2:24 am

    No

  33. Rob Williams
    July 17, 2021 at 2:24 am

    I’d like to dedicate this video to my real estate friends who kept telling me that rates will never be this low again! 😂

  34. william stephenson
    July 17, 2021 at 2:24 am

    The Fed has never done anything in the best interests of the people. Period.

  35. erik hoyer
    July 17, 2021 at 2:24 am

    2008, recession, people buying gold, unemployment rate low. SOUNDS LIKE 2008 IS HAPPENING AGAIN. 2020 CRASH 📉📉

  36. Charles Bradford
    July 17, 2021 at 2:24 am

    No