I Asked ChatGPT What Will Happen To the Economy If the Fed Keeps Cutting Interest Rates: Here’s What It Said
Written by
Dawn Allcot
Edited by
Molly Sullivan
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
In mid-September, the U.S. Federal Reserve voted to lower interest rates by a quarter percent, moving the federal funds rate to a target range of 4% to 4.25%. It’s been the first rate drop in nine months, fueled in part by a softer-than-expected jobs report in August, according to JPMorgan.com.
At the Federal Open Market Committee meeting in September, Federal Reserve Chair Jerome Powell called the move a “risk management cut,” in an attempt to reduce labor market woes. But the experts at J.P. Morgan Global Research predicted two more cuts in 2025 and one in 2026.
GOBankingRates asked ChatGPT, “What will happen to the economy if the Fed keeps cutting interest rates?” Here are the AI’s predictions for the American fiscal future.
The Prompt
To engineer a better prompt, I first set the stage with ChatGPT 5. I didn’t want my background to come into play. “Pretend I’m not a finance writer and have only a basic adult understanding of finance and economics. In light of the recent Fed rate cut, what will happen to the economy if the Fed keeps cutting interest rates?”
ChatGPT lived up to its nickname of “Chatty G,” by offering a 1,000-word explanation, complete with charts and a list of the downsides and upsides. Here are some of the highlights.
The Effects of Lower Interest Rates, According to ChatGPT
“When the Fed lowers its key interest rate (the ‘federal funds rate’ in the U.S.), it’s trying to make borrowing cheaper and encourage more economic activity. Here’s how that works,” it said.
- Lower interest rates mean cheaper borrowing, leading to business expansion.
- Lower rates for mortgages, car loans and credit cards can increase consumer spending and demand for goods and services.
- Stocks and real estate prices may rise.
“So,” ChatGPT said, “if the Fed keeps cutting rates in response to economic weakness, the hope is that these channels will help:
- Lift growth (increase output, reduce unemployment)
- Avoid or shorten recessions
- Encourage investment rather than letting the economy stagnate
The Downside to Lower Interest Rates
However, ChatGPT continued, “If the Fed keeps cutting for too long (or too far), several problems can arise.”
It listed:
- Inflation risks
- Diminishing returns
- Encouraging bubbles (in real estate or the stock market)
- Lower returns for savers and those on fixed incomes
Likely Scenario?
ChatGPT also added a few more important points: “When the Fed cuts rates, the effects don’t show up instantly. Mortgage rates, long-term bond yields, and credit card rates may lag … Also, housing affordability probably won’t improve dramatically with just rate cuts, because long-term interest rates (which impact mortgages) may not move very much,” ChatGPT said.
Sourcing J.P. Morgan and business publications, ChatGPT concluded, “Given recent economic conditions (sticky inflation, slowing growth, etc.), many economists believe the Fed will move cautiously. They may cut rates some more if data softens, but they are wary of overstimulating the economy while inflation still remains above target.”
More From GOBankingRates
