The fed can use the rate to effectively decrease the cost of borrowing money. The rational there is if economic activity is slowing, you decrease the cost of s

The fed can use the rate to effectively decrease the cost of borrowing money. The rational there is if economic activity is slowing, you decrease the cost of spending money. The rate is usually dropped when economic activity slows, and should be increased as economic activity increases. I'm sure people will disagree, but I don't think we've had the rate increase to levels prior to the last recession (though I didn't actually double check). Effectively, anticipating a drop in the fed's rate is an expectation that economic activity will slow (recession behavior) and the fed will have to stimulate it by making money cheaper. To me, the interesting part of this is what the fed does after the rate reaches 0. Read up on Quantitative Easing and Ben Bernanke's response to the last major recession, it's a really interesting environment to learn a bit about.