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The Fed Cut Interest Rates For The First Time In A Decade: A Quick Explainer

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The Federal Reserve cut interest rates for the first time since 2008, citing worries about a global economic slowdown and low inflation rates. Here’s what you need to know: Cut It Out The last time the Fed cut interest rates, in December of 2008, it was to help stabilize the economy during the financial crisis. The situation is a bit different this time, as the economic expansion is continuing apace, and instead, the Fed is trying to get ahead of a few concerning trends before they become bigger problems. Slowdown There’s two major issues that have the Fed worried. The first is the ongoing fear that China’s economic slowdown (caused in great part by their aging economy, which is not replacing workers fast enough) might start to harm the global economy. Additionally, the Fed is worried about low inflation rates. While consumers don’t love inflation, a little bit is good for the economy, because it helps keep wages high and it gives the Fed wiggle room to make cuts in an emergency. Rated I Cutting the interest rate basically means reducing the interest one takes on when getting a loan. The lower the rate, the cheaper the loan, the more people who can get loans and thus boost the economy. The Fed dropped the overnight lending rate from 2.0% from 2.25%, or about 25 points, which they hope will be enough to fend off a downturn. But President Trump has been hammering Fed Chair Jerome Powell and calling for a deeper cut, and Wall Street also seems disappointed, with the S&P index falling 1.8%. Powell said he did not see enough signs of economic weakness to justify a deeper cut. -Michael Tedder Photo: Leah Millis/REUTERS