Fed Rate Drops for Second Time in 2025
The federal funds rate doesn't just affect banks. It has ripple effects on the price of consumer products such as credit cards, student loans and mortgages.
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Update: The Federal Open Market Committee voted to lower the federal funds rate again at its October meeting.
The current Fed rate is 3.75% to 4.00%. That’s according to the Federal Open Market Committee (FOMC), the monetary policymaking part of the Federal Reserve that holds eight regularly scheduled meetings a year to set the federal funds rate.
What is the Fed funds rate?
The federal funds rate, or Fed rate, is the interest rate that U.S. banks pay one another to borrow or loan money overnight. It also affects interest rates on everyday consumer products, such as credit cards or mortgages.
Since banks hold reserves to conduct everyday business such as having enough liquidity and clearing payments, banks that need more reserves often borrow money from other banks.
When is the next Fed meeting?
The Federal Open Market Committee's next meeting is Dec. 9-10, 2025. This is the next scheduled time that the FOMC could modify the federal funds rate.
Who sets the Federal funds rate?
The Federal Open Market Committee sets the federal funds rate. The FOMC sets the target rate range, and sets the Fed rate to be aligned with that target range.
What a NerdWallet expert says
On Oct. 29, the Fed lowered rates by 25 basis points to 3.75%-4.00%, as expected. It’s the second meeting in a row where the FOMC has cut rates.
The Fed made its October decision in the midst of the government shutdown, which meant fewer official data reports. At a press conference following the decision announcement, Fed Chair Jerome Powell spoke to a divide among committee members about the decision itself (two members dissented) and alluded to uncertainty ahead. He said the possibility of another cut is “far from” certain at the Fed’s final meeting of the year in December.
Of the decision, Elizabeth Renter, senior economist at NerdWallet, says, “In the absence of recent federal jobs data, the Fed still sees the risks to the labor market as possibly outweighing the risks of continued elevated inflation. But they’re moving cautiously, as the cut is not in response to a certain downturn. Instead the Fed is hoping they can move rates gradually to prevent a downturn, walking a potential tightrope but taking small steps to minimize the risk of a misstep.”
Renter adds that small cuts are unlikely to make a big difference to consumers. “Over time, lower rates could mean a stronger labor market and an easier time finding work, but this cut is unlikely to move the needle substantially in any direction.”
Read more about the October Fed rate decision.
What is the current Fed interest rate?
Right now, the Fed interest rate is 3.75% to 4.00%. The FOMC set the rate at its Oct. 28-29 meeting.
Here are the most recent Fed rates from regularly scheduled FOMC meetings:
FOMC meeting dates | Rate change | Fed rate (as a target range) |
|---|---|---|
Oct. 28-29, 2025. | Decrease of 25 basis points (or 0.25 percentage point). | 3.75% to 4.00%. |
Sept. 16-17, 2025. | Decrease of 25 basis points (or 0.25 percentage point). | 4.00% to 4.25%. |
July 29-30, 2025. | None. | 4.25% to 4.50%. |
June 17-18, 2025. | None. | 4.25% to 4.50%. |
May 6-7, 2025. | None. | 4.25% to 4.50%. |
March 18-19, 2025. | None. | 4.25% to 4.50%. |
Jan. 28-29, 2025. | None. | 4.25% to 4.50%. |
» RELATED: Learn what basis points are
After sitting at 0% for two years during the coronavirus pandemic, the rate steadily climbed starting in March 2022, as the Federal Reserve aimed to combat inflation. But the climb stopped a year and a half later. The Fed then paused rates eight times between July 2023 and July 2024. In 2024, the Federal Reserve decreased the federal funds rate three times. The Fed held steady in 2025 until its meeting in September, when it cut the rate by 25 basis points. It lowered the rate again in October.
» MORE: Understand how raising interest rates helps inflation
Will rates be cut further this year?
At the FOMC’s December 2024 meeting, a survey of FOMC members known as the "dot plot," showed that a majority of members projected 50 bps cut to 3.9% in total by the end of 2025. The members’ median projection at the FOMC’s March meeting showed the same rate decrease by year’s end. The most recent rate cut has proven the projections to be accurate.
Whether the rate will be cut even further in 2025 is yet to be determined; the Committee has one more planned meeting this year. Dec. 9-10 is the next scheduled time that the FOMC could modify the federal funds rate.
» Find out: What savers should do after the Fed's rate cut
What happens when the Fed lowers interest rates?
When the Federal reserve lowers the federal funds rate, banks pay less to borrow money from one another. Banks, in turn, lower interest rates on loans (including mortgages) and credit cards, lowering the cost of borrowing money to buy cars, homes and other big purchases. The stock market is likely to be affected by a lower Fed rate hike, with stock prices growing. All of these factors are intended to induce economic growth. With borrowing costs lowered, consumers have incentive to spend and invest more.
Unfortunately, lower interest rates at banks due to a lower Fed rate means that deposit account interest rates will fall, too. So annual percentage yields on deposit products such as CDs, savings and interest-bearing checking accounts will decline as well.
The Federal Reserve paused on changes to the federal funds rate starting in July 2023, keeping rates steady for more than a year. As such, bank interest rates generally remained flat starting in September 2023 until 2024 when interest rates began to fall. In anticipation of a drop, banks started lowering rates on deposit accounts such as savings and certificates of deposit. The Federal Reserve dropped its interest rate three times in 2024: by 50 basis points in September to 4.75% to 5.00%, then by 25 basis points in November to 4.50% to 4.75% and by 25 basis points again in December to 4.25% to 4.50%. After holding rates steady for most of 2025, the Fed cut them to 4.00% to 4.25% in September, then to 3.75% to 4.00% in October.
» Are rates going up or down? Check out NerdWallet’s savings forecast
What happens when the Fed raises interest rates?
First, some context on Fed rate hikes. The Federal Reserve raises the federal funds rate to curb inflation. When it increases the Fed rate, banks pay more to borrow money from one another. When the federal funds rate rises, it doesn’t just affect banks sending and receiving money. Those banks pass on that expense to customers by charging higher interest rates on products like credit cards and mortgages. The idea is that by increasing the cost of credit, demand for goods and services will fall, causing their prices to subsequently fall, too.
Here’s why that happens: The Federal Reserve can change only the federal funds rate. But since that rate is tied to other rates and variables, those changes have wide-reaching effects. When the Fed rate goes up, it’s more expensive for banks to borrow money. So it gets more expensive for consumers to borrow money, too. Anything tied to financing, including credit cards, car payments, student loans or mortgages, can get pricier.
On the other hand, a rising rate can lead to higher yields for savers and better rates for CD investors in some bank accounts.
» MORE: See our CD rates forecast
How does the Fed lower interest rates?
The Federal Open Market Committee, a 12-member group of banking leaders from around the country, sets the federal funds rate and much of the Federal Reserve’s monetary policy. It typically meets eight times a year and sometimes makes rate changes — including increases or decreases — outside its scheduled meetings.
Here's the 2025 FOMC meeting schedule:
Jan. 28-29.
March 18-19.
May 6-7.
June 17-18.
July 29-30.
Aug. 22 (notation vote).
Sept. 16-17.
Oct. 28-29.
Dec. 9-10.
Does the president control interest rates?
President Donald Trump has pledged to lower interest rates, but that decision is out of his direct control.
The FOMC is the only authority on federal funds rate actions. It is a nonpolitical entity and operates independent of the president. Trump has pressured the FOMC to lower rates and has even threatened to fire Powell from his position if he does not bend to Trump’s will. However, a president has no legal authority to remove the chair before the end of term.
Still, presidents can exert indirect influence over how rate decisions are made. Here’s how:
Appointing officials. The president is in charge of appointing Federal Reserve Board officials, including the chair of the Fed. Trump nominated Powell to serve as chair in November 2017.
Taking executive actions. The president can take actions to impact the economy including inflation and growth.
Directing policy decisions. The president can influence Congress to create fiscal policy like spending and tax legislation, which would have economic effects including.
What is the Federal Reserve Board?
The Federal Reserve Board is the umbrella agency that governs the Federal Reserve System. It comprises three groups: the 12 Federal Reserve Banks in the U.S., the Board of Governors and the Federal Open Market Committee.
The Federal Reserve Board is responsible for the Federal Reserve achieving its three Congressional mandates: maintaining maximum employment, steady prices on goods and services, and moderate interest rates throughout the country.