They drop the interest rate in an attempt to increase aggregate demand (increase consumer spending, business investment, exports via a lower dollar). This is a tool to manage an economy and stop it from slowing down to the point where it becomes negative (recession).
The one thing that is scaring everybody though is that it can result in inflation, as essentially there will be more money chasing the same number of products out there - which leads to higher prices. This fear is brought up by those that say we are in inflationary times already if we look at the price of oil and food.
I think this inflation metric is now skewed in this day and age, as oil is not a commodity and since food has been used for energy, we are changing the inherent "use" of the product for which inflation was derived.
So good for the cut. It is needed and is a basic tool.
Heck, I think most of this recent crash was started because of good ol' George W. Bush thinking he can play the Fed and fix things. When he stated that their government would change their fiscal policy, the rest of the world showed how much faith they have in him by dumping. Essentially saying that "if that lunkhead thinks there may actually be a problem in America, then f-it, we are out of here cause that means 1) it is actually really bad and 2) we have no faith in his ability to help."
The Fed though is respected and by putting this through quickly they show they are nimble enough to respond to any "emergencies"
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