An interest rate cut occurs when a central bank, like the Federal Reserve, reduces the rate at which it lends money to commercial banks. This action aims to stimulate economic growth by making borrowing cheaper for businesses and consumers. Lower interest rates can encourage spending and investment, which can help boost the economy during slow periods. When interest rates are cut, it can also lead to lower rates on loans, such as mortgages and car loans. This can make it easier for individuals to finance big purchases, potentially increasing demand for goods and services in the economy.