Fed Rate Holds Steady; Cuts May Come Later 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 hold the federal funds rate unchanged at its July meeting.
The current Fed rate is 4.25% to 4.50%. That’s according to the Federal Open Market Committee (FOMC), the monetary policymaking part of the Federal Reserve that holds eight 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.
What a NerdWallet expert says
On July 30, the federal funds rate was paused at 4.25% to 4.50%, as expected. It’s the fifth meeting in a row that the FOMC has paused rates. There are three meetings remaining in 2025.
However, the Fed was not unanimous in its decision: For the first time since 1993, two of the 12 FOMC members dissented. Both members were calling for a 0.25 percentage point cut.
Of the unexpected dissent, Elizabeth Renter, senior economist at NerdWallet, says, “Though there wasn’t consensus on the right direction of monetary policy, the overwhelming majority of members believed not moving on rates to be the best decision. Their motivation: Inflation is still above the 2% target and the economy continues to be stable while rates are high. Further, so much is yet unknown, not the least of which is the final amount of tariffs that will be passed along to U.S. businesses and consumers.”
During a press conference following the rate decision, Federal Reserve Chair Jerome Powell said the effects of tariffs are still “early days.” Of the potential for tariff-driven price increases, Powell said. “A reasonable base case is that these are one-time price effects. But in the end, they will not turn into lasting inflation — because we will make sure they don’t.”
Prior to the decision, President Donald Trump, on his social media site Truth Social, called for the Fed to cut interest rates following the release of a gross domestic product (GDP) report that showed a rebounding growth rate for the second quarter of 2025, compared to the first quarter’s negative rate. He wrote: “‘Too Late’ MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!” The “Too Late” in Trump’s statement, refers to the president’s nickname for Powell, whom he has long criticized for his handling of the Fed. From the White House, he later fed rumors of a rate cut in September. Trump has also said that the Central Bank should aim for a 3-basis-point reduction.
But the FOMC makes its decisions independent of the White House and driven by economic data, which Powell reiterated in his remarks. “We don’t consider the fiscal needs of the federal government. No advanced-economy central bank does — and it wouldn’t be good if we did,” he said.
It’s unclear if the Central Bank will cut rates this year, but following the announcement, the futures market’s CME FedWatch Tool showed a strong possibility of a cut at the next meeting in September. There is a slew of fresh data reports between the July and September meeting, along with the potential for preliminary effects of Trump’s new worldwide tariffs to take hold.
When is the next Fed meeting?
The Federal Open Market Committee's next meeting is September 16-17, 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 is the current Fed interest rate?
Right now, the Fed interest rate is 4.25% to 4.50%. The FOMC set the rate at its Dec. 17-18 meeting and has maintained the rate since.
Here are the most recent Fed rates from FOMC meetings:
FOMC meeting dates | Rate change | Fed rate (as a target range) |
|---|---|---|
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 September, November and December 2024, the Federal Reserve decreased the federal funds rate.
» MORE: Understand how raising interest rates helps inflation
Will rates be cut this year?
At the FOMC’s December meeting, a survey of FOMC members known as the "dot plot," showed that a majority of members project another 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.
At an event on April 4, Federal Reserve Chair Jerome Powell indicated that, despite heightened concerns about a recession, the FOMC is in no rush to take action on interest rates.
“It feels like we don't need to be in a hurry. It feels like we have time,” he said.
In terms of how the Fed might respond to changes in key economic data, Powell said, “Inflation is going to be moving up and growth is going to be slowing, but to me it's not clear at this time what the appropriate path for monetary policy would be. We're going to need to wait and see how this plays out before we can start to make those adjustments.”
It’s possible for the FOMC to take action between its scheduled meetings; for example, during March 2020 at the start of the short-lived recession during covid lockdown, the FOMC lowered rates to near zero.
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
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%.
» Are rates going up or down? Check out NerdWallet’s savings forecast
How does the Fed raise 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 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.
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.