The Fed lowers interest rates by injecting money into the banking system. Banks then cut short-term interest rates to spur lending of their extra reserves. Once started, this process supposedly feeds on itself. Long-term interest rates on mortgages and bonds also decline. People and businesses borrow more.
Lower rates permit mortgages to be refinanced, reducing monthly payments.
This, too, enhances households' spending power. As rates drop on money-market funds and bonds, people may look for better returns by shifting into stocks. The market could rise. Finally, lower interest rates might make the dollar depreciate on foreign exchange arkets. American exports would become more competitive, aiding manufacturers.