I think the basic idea is that cutting interest rates stimulates the economy. It gets people borrowing (because they want to spend!). And the lower interest rates go, the less incentive people have to keep their money tied up in bonds or similar investments.
This is why the Fed used high interest rates to curb inflation. The economy was too stimulated. Raising interest rates was like giving the economy a xanex, to chill it out so prices would quit rising. Then, as inflation has waned, the Fed has able to slowly cut interest rates. But the Fed has to be slow; it has to wean the economy off of the high interest rates it set. If the Fed cuts interest rates too fast, the economy will get hyper-stimulated too fast and inflation will come right back.
Now we get to Trump. As President, he cares about the stock mark and economy. But he also wants his tariffs. His tariffs will hurt the stock market and economy. So he's hoping the fed will cut rates, which might stimulate the economy enough to counteract/balance out his tariffs. In his view, he can enact all of the tariffs without any of the pain if the Fed cuts rates.
That's the gist of it, I think.
There are disagreements over whether cutting rates will counteract the tariffs, and over what the right move for the Fed is, but the bottom line is that Trump thinks interest rate cuts will stimulate the economy, counteracting his tariffs.
the problem, as im sure youve seen plenty of others say already, is that inflation is already elevated. they don’t want to cut rates.Â
once growth slows to a crawl and inflation is also high, it’s very difficult to turn things around. you’ve found yourself outside of the normal boom bust yin yang cycle and can easily get stuck that way for years.Â
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u/DPMKIV 1d ago
It's called a FED bailout...
It theoretically should ease the free fall to prevent an all-out crash.