Inflation and interest rates are joined at the hip, and the joint is the federal funds rate — the rate at which banks lend to each other overnight, set by the Federal Reserve. It is the reference point for business and consumer loans alike and the clearest public signal of where policy is headed. When the economy slows, the Fed typically lowers the rate: borrowing gets cheaper, spending picks up, and activity revives. When the economy runs too hot, the Fed raises the rate to curb borrowing and cool growth down.
That tidy rule has one important failure mode. When prices are climbing and growth is stalling at the same time — stagflation — the Fed is cornered: cut rates to rescue growth and you pour fuel on inflation; raise them to fight inflation and you choke an already weak economy. Periods like that have no painless exit, which is exactly why you should never assume a rate cut will arrive on schedule to bail out a falling market.