The Fed generally cuts interest rates when inflation is subdued and the economy needs a boost. The Fed cut rates in January for the first time in two years in response to a sharp economic slowdown.
Businesses: Lower rates cut the cost of capital, improving profit margins and encouraging expansion.
Consumers: Lower interest rates can create economic activity by inducing consumer spending. Lower mortgage rates, for example, can spark home sales and mortgage refinancings. But the Fed's ability to affect such long-term rates is indirect.
Markets: Lower interest rates tend to boost stock prices because bonds and other fixed-income investments no longer are so attractive. In addition, lower rates cut costs for companies, boosting profits.
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