Final answer:
The headline suggests that the Federal Reserve is easing monetary policy to encourage economic growth. Lowering the federal funds rate reduces the cost of borrowing to stimulate spending and investment, a common strategy during periods of slow economic growth or low inflation. Option C
Step-by-step explanation:
When the headline says "Fed Cuts Federal Funds Rate for Fifth Time This Year," it is indicative that the Federal Reserve is most likely attempting to ease monetary policy. This action is taken to encourage economic growth by making borrowing cheaper, thus stimulating spending and investment. Cutting the federal funds rate lowers the cost of borrowing for banks, which can then pass on the lower costs to consumers and businesses.
The policy of reducing interest rates is typically employed when economic growth is sluggish, and there is a need to spur economic activity. For example, in response to the economic downturns in 2001 and 2008, the Federal Reserve significantly lowered the federal funds rate. These rate cuts were part of a larger strategy to combat recession by stimulating demand through increased borrowing and spending.
Moreover, during times of very low inflation or deflationary pressures, lowering interest rates can help prevent deflation by promoting a modest increase in prices, sustaining the inflation rate within a manageable range.
This strategy was evident in different periods, such as after the 2008 financial crisis and the economic impacts caused by the COVID-19 pandemic in March 2020 when the Fed reduced the target federal funds rate to stimulate the economy. Option C