Why might the Federal Reserve choose to cut interest rates during an economic downturn?

The Federal Reserve may choose to cut interest rates during an economic downturn primarily to stimulate borrowing and spending. Lowering interest rates makes borrowing less expensive for consumers and businesses, which can encourage them to take out loans for purchases, investments, and expansion. This increased borrowing can lead to greater consumer spending and business investment, ultimately helping to boost economic growth during a period of downturn.

When interest rates are reduced, it typically leads to lower monthly payments for loans, making it more attractive for individuals to finance major purchases such as homes and cars. For businesses, reduced rates can translate to lower costs for financing projects and operations. This increased economic activity can help lift the economy out of a downturn by enhancing demand for goods and services.

While the other options relate to broader economic concepts, they do not align directly with the primary goal of lowering rates in response to a downturn. Strengthening the US dollar, reducing the money supply, and increasing inflation may involve different monetary policy tactics that are not primarily aimed at addressing the immediate needs of an economy suffering from stagnation or decline.