Lowering Fed Rates Question. - Correct me if I'm wrong, but I was under the impression that rates get lowered when there is a need to stimulate the economy. Things like COVID, 9/11 or 2008 (major events) that essentially disrupt both demand and supply.

There is speculation that the fed will lower rates soon just to lower rates. I'm not sure I fully understand why anyone would think the fed would do this. Not only are we **not** at the fed's target for inflation, but we have a ways to go if we want to get there.

If the fed decided to lower rates for no reason other than stimulating the economy, I would expect to see a surge in inflation again. For example, we paused rates in June and a month later, inflation went up again. Imagine what lower rates would do. Especially if we lowered them and disaster struck.

I can understand lowering rates if inflation was clearly going down and rates were high like they were in the 70's or 80's. However, rates aren't that high and the means to stimulate the economy without having to deal with inflation are extremely thin. That is a massive liability for the fed to take if they did this.

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Answer:

>When rates change, there are short term effects and long term effects. The high inflation you see now is related to the low interest rates over the past 1-2 years as it overstimulated the economy driving prices to inflate. As we’ve now raised rates nearly a dozen times in 2023 at a quick pace, we’ll most likely see the long term effects in mid-late 2024 and there is a more than likely overshoot which is why speculation is rates will lower a bit in Q4 2024 to bring it back up slightly. Rate effects take time to be realized throughout the economy and may also change direction as other factors come into play between now and Q4 2024.

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