How does the interest rate cuts by the federal government affect the USA?

Question

i read the federal government is going to cut the interest rate again. what interest rate are they cutting? how would it affect me in the USA? What does the rate cut do?

Answer 1

The previous answer isn't quite right:
The Fed controls the Fed funds rate, which is the rate at which the Fed makes short term loans to large banks and such. The PRIME rate is set by individual banks and is usually 3% higher than the Fed funds rate.
An interest rate cut by the Fed makes it easier for large banks to borrow money, so they can turn around and loan it to someone else. It doesn't directly affect mortgage rates, and most banks are offering fixed rate mortgages at well under prime already. (As of last week, Bank of America was offering 30 year fixed rate loans at 6.00% with two points). It might affect variable rate mortgages that are based on the prime rate.
Now, the down side: Reductions in interest rates are what is driving down the US dollar more than anything. Investors know that they can do better buying Euro or UK Pound denominated bonds, That is going to make all imported goods, including oil, more expensive. It also makes American goods cheaper abroad, which hopefully helps American industry.

Answer 2

The PRIME rate. Which means this:

People can refinance their homes and get a lower rate

People can get lower loans on their cars

People can get lower interest rates on their credit cards.

All of these things increase consumer spending and consumer income. Does this help?