On the Mark: Fed Rate Cut—Now What?
The Fed has a dual mandate of promoting low
inflation and full employment. In many ways, those
two mandates are at odds with one another. The
Fed seeks to balance low inflation and full
employment by adjusting short-term interest rates.
When the Fed raises interest rates (like they did in
2022), demand generally falls, typically leading to
lower inflation and higher unemployment.
Conversely, when they cut rates, demand generally
rises, typically leading to higher inflation and lower
unemployment. With the Fed’s long-term inflation
target in sight and labor markets still relatively
healthy, the Fed cut interest rates in hopes of
avoiding a recession in the future.