Question

Briefly describe the announced reason and some other potentially plausible (possibly unannounced) reasons why the US Federal Reserve wanted to cut the rate (2020). Using the tools of economic analysis, explain how the announced rate cute decision (2020) will achieve its stated aims. Note any unintended consequences of the policy, briefly describing how they might arise.

With your own words, do not copy-paste from the internet.

Answer 1

The Fed wanted lower interest rates in order to stimulate economic growth. Lower financing costs can encourage borrowing and investing. However, when rates are too low, they can spur excessive growth and perhaps inflation. Inflation eats away at purchasing power and could undermine the sustainability of the desired economic expansion.

Cutting rates can strengthen confidencea help to keep borrowing cheap, it cannot prevent disease from spreading or help companies deal with delayed orders or sick workers.