Yes, interest rates are going down again. After nearly a year-long pause, the Federal Reserve resumed its short-term interest rate–cutting campaign in September 2025, dropping the benchmark rate one-quarter point to a range of 4% to 4.25%. Federal Reserve chairman Jerome Powell signaled that there could be two more quarter-point cuts in 2025, as well as a third cut in 2026, which would leave rates in the 3.25%-to-3.5% range.
Bottom Line Personal asked Elliott Gue, co-founder of the investment-publishing company Capitalist Times, to explain the effects of interest rates on you and your money.
What Interest Rate Cuts Mean for the Economy
Interest rate cuts are meant to encourage economic activity and job growth, but policymakers are in a tough position because there’s disagreement over how much the economy needs stimulating now.
Consumer spending is still on solid footing, and inflation, recently 2.9%, is more elevated than the central bank would like. At the same time, there are ominous cracks in the labor market—employers have been reluctant to hire because they are worried about the effect of tariffs on their businesses. Both jobless claims and layoff announcements are on the rise, creating the potential for a significant economic slowdown in 2026.
Short-term interest rates most likely will not tumble back to near-zero pandemic levels. In fact, if core inflation heats up, rates might even have to rise again. But the Fed’s pivot toward a measured and shallow sequence of rate reductions now is likely to have a beneficial effect—it should stimulate the economy enough to avoid a recession next year without spiking inflation.
What Interest Rate Cuts Mean for Your Money
The ripple effects of Federal Reserve interest rate moves don’t just filter through the economy…they impact the money you earn or pay when you save and borrow…
High-yield savings accounts and money-market mutual funds
The rates you get on these safe, interest-bearing accounts are closely linked to short-term interest rates. That means savers who enjoyed 5%+ yields a year ago soon may have to search hard just to earn 4%.
If you keep cash at a brokerage firm in money-market mutual funds, which invest in very short-term US Treasury bonds, expect yields to drop immediately because they move in unison with the benchmark rate.
If you own a high-yield savings account at a bank, the yield will drop more slowly and the size of the cut can vary from bank to bank. Reason: The yields that banks pay are heavily influenced by what competitors are offering and their current needs to attract new capital.
Credit cards
Credit card rates are partially influenced by short-term interest rate cuts, but don’t bet these cuts will get you out of credit card debt. Many consumers will see a drop in the annual percentage rate (APR) they pay on their plastic within two billing cycles after a Federal Reserve interest rate cut. Your APR is based on the “prime rate”—the interest rate commercial banks charge their most creditworthy customers for loans, plus an individual markup determined by your creditworthiness, credit score and the specific credit card product. The prime rate closely tracks the Fed’s short-term interest rate movements. That said, if you carry a balance on your card and your APR is 20%, even several small cuts in your rate isn’t going to translate into much savings on your monthly minimum payments.
Mortgages. Rates on 30-year mortgages aren’t controlled by the Federal Reserve, so don’t bet on any major drops soon. Instead, mortgage rates generally track the movements of 10-year US Treasury bond yields—10 years is the expected amount of time a homeowner might hold a 30-year mortgage before moving or refinancing. Long-term bond yields are influenced by a variety of factors, including the bond market and long-term expectations about inflation and the economy. Mortgage rates have been trending lower on expectations of a slowing economy, recently 6.49%. But they should continue to fluctuate in the 6%-to-7% range in the coming year unless there are dramatic changes in the economy.
Other home loans
Home-equity lines of credit (HELOCs) and adjustable-rate mortgages, both of which have variable interest rates, are closely tethered to movements in short-term interest rates and generally adjust within two billing cycles after Federal Reserve cuts.
Auto loans
If you’ve been waiting to buy a new car, you might finally see rates on loans come down a bit. The average rate for a new car has remained virtually unchanged at 7% for the past year. Car loans track the yield on five-year US Treasury notes, which are influenced by the Fed’s short-term rate. But other factors also determine how much auto buyers actually pay, including the length of the loan, the amount they are borrowing and broader delinquency rates.
