SOURCE: USATODAY

The new rate cut from the Federal Reserve hopes to prevent a recession.

The Federal Reserve cuts short-term rates when it wants to boost the economy. It lowers the target for the federal funds rate. This rate cut lowered its target rate for fed funds by three-quarters of a point, from 4.25% to 3.5%.

The lower the interest rate, the easier, and less expensive it is for businesses and individuals to borrow money. Lower rates mean there is more money to lend. Companies find it easier to get commercial loans for new factories and trucks. As companies expand, they can hire workers. That also stimulates the economy.

Lower rates also help boost the housing market. Lower mortgage rates mean more people can buy houses.

Homeowners are a huge engine of economic growth. And that's why the Fed is so worried about the housing slowdown. When you buy a house, soon you're buying a lawnmower, drapes and a replacement furnace.

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