The Fed Cuts Loose? : Planet Money An economic principle that has guided the Federal Reserve for decades is increasingly being questioned.
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The Fed Cuts Loose?

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The Fed Cuts Loose?

The Fed Cuts Loose?

The Fed Cuts Loose?

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  • <iframe src="https://www.npr.org/player/embed/745031522/745039935" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Zach Gibson/Getty Images
Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing on Capitol Hill on July 10, 2019 in Washington, DC.
Zach Gibson/Getty Images

For the first time in more than a decade, the U.S. Federal Reserve may cut interest rates next week — even though it's not clear that the economy needs it. Instead the Fed is worried that the U.S. economy will be harmed later this year by weakening economic growth in other countries, by trade wars, and by other factors. It's an "insurance" cut, meant to bolster the economy against weakness in the future rather than in the present.

To justify the rate cut, the Fed has been forced to rethink an economic principle that, for decades, has guided monetary policy: the relationship between unemployment and inflation.

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