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Why the Fed Cut Rates: To Try to Fix Last Year’s Mistake

Several of the questions directed at Jerome Powell at his Wednesday afternoon news conference boiled down to this: Why did you just cut interest rates when, by your own acknowledgment, the American economy looks perfectly solid? What good can this possibly achieve?

Mr. Powell, the Federal Reserve chair, answered by ticking off the reasons — persistently low inflation and a troubled world economy that poses risks to the United States — for the Fed policy committee’s move.

But there is a broader way to interpret it.

The quarter-percentage-point cut to the target interest rate is really about trying to apply the lessons that the last decade have taught us. It is not a recession-fighting measure per se, but a recalibration, and an implicit acknowledgment that the Fed made a mistake last year by raising interest rates to nearly 2.5 percent. […]

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