Where is the Fed rate cut felt in the economy?
Question/Comment: A Fed rate cut presumably has a cost; where is that felt?
Paul Solman: Encouraging folks who made bad decisions before – invested stupidly, say, in mortgage-backed securities – to invest stupidly again, since the Fed will bail them out.
Eventually, the cost is felt in inflation. When the Fed cuts, it is putting more money into the economy. More money, given the same amount of goods and services, means the money is worth less. That’s inflation.