Cutting Interest Rates

So why cut rates now?

As of Wednesday the 18th around 4:00, the federal reserve just released a plan to cut interest rates by a quarter of a percentage point. This is the second time that the feds have cut rates this year and puts interests rates for borrowing money a little under 2% now. While there has been a decent amount of criticism for cutting rates as the dow is already at an all time high, the president wanted to cut rates even more. So what does cutting interest rates really mean? Whenever people borrow money from the federal reserve they have to pay interest on it back to the federal reserve. By lowering interest rates the Federal reserve is making it cheaper to borrow money, which will lead to more money being circled into the economy and a good economic boost. So why cut rates now? The United States economy is still strong from the recent tax cuts, and is actually on it longest winning streak in recorded history. At first glance, there is really no point in boosting an already boosted economy, but if you think about these cuts in relation to the 2020 race things begin to make far more sense. Cutting interest rates now is actually widely considered a bad economic move as having them so low will mean that the reserve won't be able to use interest rates as a way to boost the US economy when a recession hits. However in the coming year it will likely boost the US economy a considerable amount leading to favorable 2020 reelection odds for the president. Since one of Trump’s core election promises in 2016 was economic prosperity it comes as no surprise that he is forcing the feds to drop rates.

By: Ben Butcher

Sources: Macrotrends; Forbes