What Does the Fed Rate Cut Mean For You?

For the first time in nine months, the Fed cut rates, which means two things for consumers: borrowing will get cheaper, but savings returns won’t be as high. It’ll take time for either effect to take hold.

The Federal Open Market Committee (FOMC) cut the federal funds rate by 25 basis points on Wednesday, as expected, bringing the federal funds rate range to 4.00%-4.25%.

The Fed last cut rates at its December 2024 meeting, following cuts at its two previous meetings. Throughout 2025, the federal funds rate has stood at 4.25%-4.50%.

For months, President Donald Trump has been pressuring the central bank to slash rates, but the Fed has firmly stated it bases its decisions on data and the broader economy. There are a few crucial elements that led to the rate cut: a steadily-weakening labor market and persisting inflation pressures, fueled by tariffs.

“The labor market has lost some of its vigor over the past several months and continued high rates would encourage further cooling,” says NerdWallet’s Senior Economist Elizabeth Renter.

What happens when there’s a rate cut?

A federal rate cut doesn’t automatically or immediately mean lower interest rates on financial products. Here’s what you may expect to happen:

It’ll be cheaper to borrow. When the Fed lowers the federal funds rate, banks will pay less to borrow from each other. The banks respond by lowering interest rates on loans. That includes credit cards, auto loans, mortgages, personal loans and more.

It’ll be cheaper to refinance. Lenders may trim rates for those looking to refinance an existing mortgage or other loan.

Saving will be less rewarding. Annual percentage yields will fall on common savings products like high-yield savings accounts, CDs and interest-bearing checking accounts.

Markets could fluctuate. Typically, cheaper borrowing tends to boost investor confidence and encourages businesses to expand, which leads to higher corporate profits. But if the rate cuts are perceived as a response to economic decline, then the markets could be more volatile.

Will the Fed cut rates again?

It’s likely, but nothing is certain. Yes, that’s a vague answer, but it’s true.

Renters says, “Continued inflationary pressures paired with a weakening labor market could ultimately require the Committee to determine which discomfort — high inflation or high rates — is most palatable or in the best interest of the economy overall.”

The FOMC’s next meeting is Oct. 28-29. The final meeting of the year will be Dec. 9-10. The futures market’s CME Fedwatch tool places strong odds of a rate cut at both meetings.