Federal Reserve cuts interest rates, what it means for your money
The Federal Reserve cut interest rates for the first time since 2024. Here’s what that means for you.
- The last time the Federal Reserve cut the federal funds rate was on Sept. 17 when the benchmark rate was reduced by a quarter point. The Fed cut rates three times in 2024.
- The average 30-year fixed rate mortgage dropped to 6.27% as of Oct. 16 from a high in 2025 of 7.04% as of Jan. 16.
- Many consumers aren’t seeing much relief in their credit card rates.
The second interest rate cut of 2025 is likely to hit before Halloween once the Federal Reserve concludes its two-day policy meeting on Oct. 28 and Oct. 29. At least, that’s what most analysts expect.
Many experts are calling for another quarter-point haircut. If so, we could be looking at short-term rates in a target range of 3.75% to 4%.
The last time the Federal Reserve cut the federal funds rate was on Sept. 17 when the benchmark rate was reduced by a quarter point. The Fed cut rates three times in 2024.
But what can consumers expect if they’re looking to refinance a mortgage, buy a new home, take out a car loan or pay down their credit card debt?
“A 25 basis point cut in October is a fait accompli,” said economist Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles.
“In the midst of a slowing job market, it is an insurance cut.”
By slightly lowering borrowing costs, Sohn said, the Fed is giving the economy more room to grow as lower rates can give a lift to business investment, hiring, and consumer spending on cars and other goods.
What happens to mortgage rates after Fed rate cuts?
Mortgage rates — which are not tied directly to Fed rate cuts — edged down this year. The average 30-year fixed rate mortgage dropped to 6.27% as of Oct. 16 from a high in 2025 of 7.04% as of Jan. 16.
Mortgage rates aren’t pegged directly to the short-term federal funds rate, which the Federal Reserve sets at its policy meetings.
Instead, how far mortgage rates might fall — or go up — will depend on activity in the 10-year U.S. Treasury market, which serves as the benchmark for mortgages and other long-term rates.
Sohn noted that concerns about potentially higher inflation, combined with high budget deficits, could keep the 10-year Treasury yield at a lofty level even after the Fed cuts rates.
“Nevertheless, the long-term trends in the interest rates, both short and long, are downward,” Sohn said.
Someone looking to refinance, he suggested, might want to wait it out a bit more unless an excellent opportunity arises.
Ted Rossman, senior industry analyst for Bankrate.com, said the average 30-year fixed rate mortgage has actually fallen a bit more than the federal funds rate over the past two years.
But lately, he said, there’s been a bit of “buy the rumor, sell the news” where mortgage rates popped up a bit after the last Fed rate cut in September.
The 30-year average had moved to 6.34% as of Oct. 2, based on Freddie Mac data, up from 6.26% as of Sept. 18.
“Long-term Treasury rates are set by investor expectations on jobs, economic growth, inflation and other factors,” Rossman told the Detroit Free Press.
Two years ago in October, he noted, the average 30-year fixed mortgage rate briefly hit 8% for the first time in more than two decades.
“If you bought a home in 2023 or 2024 and locked in an 8% or 7.5% or even a 7% rate, you could be in a position to refinance at today’s rates,” Rossman said.
How much you might save would depend a great deal on whether you had good credit.
“While the average 30-year fixed rate is 6.35% at present, you could potentially get a rate in the low 5s if you have a strong credit score and shop around aggressively,” Rossman said.
Even so, he noted, 70% of current mortgage holders already have rates below 5%, so “the refinancing window remains shut for most homeowners.”
Economist Mark Zandi, who also expects a quarter-point rate cut to be announced Wednesday Oct. 29, said mortgage rates currently reflect investor expectations for future rate cuts.
“For most homeowners, this mortgage rate is still too high to profitably refinance their mortgage,” Zandi said, noting that the average rate on existing mortgages is closer to 4.25%.
Buying a home remains unaffordable for most homebuyers at the current mortgage rate, he said.
Mortgage rates need to get below 6% into more of a 5% range for buying and refinancing a home to be more financially viable for many consumers, Zandi said.
It’s debatable, though, how soon potential homebuyers and those wanting to refinance will see much relief.
“With signs of softer economic momentum and a deteriorating labor market, mortgage rates may drift slightly lower through 2026,” Kara Ng, senior economist at Zillow Home Loans, said in a statement.
Still, she noted that Zillow expects the 30-year fixed rate to remain confined within the 6% to 7% range observed in recent years.
“Substantial downward pressure on rates is unlikely for the remainder of 2025, though modest relief could emerge as 2026 unfolds,” Ng said.
Even with modest relief from potentially lower mortgage rates, she said affordability remains a challenge for many homebuyers, thanks to high home prices.
Half of the major metro markets in the United States saw home values fall to some degree in the last year, Ng said, but prices are still significantly higher than before the COVID-19 pandemic hit in 2020.
What happens to your credit card bill after a rate cut?
Unfortunately, many consumers aren’t seeing much relief in their credit card rates. And they probably shouldn’t expect the next Fed rate cut to help much, either.
“Credit card rates are so high that a quarter-point cut won’t make much difference,” Rossman said.
The average credit card rate is 20.03%. Right before the Fed rate cut on Sept. 17, Bankrate.com reported that the average credit card rate was 20.12%. By comparison, the average credit card rate was 20.72% on Dec. 18, 2023.
“So it has fallen a little bit, 9 basis points, but not much,” Rossman said.
A consumer who has an average credit card balance of $6,473 would be in debt for 219 months — or a bit more than 18 years — if they just kept making minimum payments on a card with an interest rate of 20.03%, Rossman said.
You’d owe $9,380 in interest.
“If that rate falls a quarter-point to 19.78%, the minimum payment math works out to 218 months and $9,255 in interest. Still not a pretty picture,” Rossman said.
Bankrate.com tracks new credit card offers and credit card issuers aren’t obligated to lower rates on new offers after a Fed rate cut.
For existing customers, credit cards often have variable rates, which drop after the prime rate falls. The prime rate — now 7.25% — drops in tandem with a Fed rate cut.
It can take one to two billing statement cycles for credit card rate adjustments to filter through to existing cardholders.
A few credit card issuers did offer lower rates for new customers in recent weeks, Rossman said, but those lower rates only applied to the most creditworthy borrowers.
Less creditworthy borrowers did not benefit; some even saw new higher rates than had been previously marketed to them.
Bankrate.com’s national average reflects a calculation that involves taking the average midpoint range offered by 111 popular credit cards from the 50 largest issuers.
“People with better credit are usually charged a bit less than the average and people with lower credit scores are charged more,” Rossman said.
Consumers who have a lower credit score and get approved for a credit card often see a rate that is 25%, 30% or more higher than the national average, he said.
“Banks have tightened lending standards on some people, especially those with lower credit scores and lower incomes,” Rossman said.
“If the unemployment rate continues to rise, we’ll probably see more of that.”
What kind of rates can you expect if you’re buying a car?
Since the Fed’s rate cut in September, the interest rates offered to both new and used car buyers have edged down slightly.
The average 60-month new car loan rate was 7.12% in late October and the average 48-month used car loan rate was 7.59%, according to Bankrate.com.
“Another quarter-point cut should lead to continued slight downward movement. But not enough to significantly affect buying decisions,” Rossman said.
One huge issue: Sticker shock has hit new, astonishingly shocking levels.
The average transaction price for a new vehicle bought in September, according to Kelley Blue Book, hit a record $50,080 in September. Granted, some of the boost can be attributed to consumers who rushed in September to buy higher priced electric vehicles in time to benefit from the federal EV tax credit, which ended Sept. 30.
Yet, the monthly payment on a $50,000 new car loan would be $954 a month on a 60-month loan if you qualify for a rate as low as 5.44%. The monthly payment jumps to $991 at a rate of 7%.
Cox Automotive’s data measures the average new car loan rate that buyers are obtaining, and that average rate hit a low at 9% in July, thanks to a sizable amount of 0% incentive offers at the time.
Since then, the average rate has increased, hitting 9.6% so far in October, according to Jonathan Smoke, chief economist for Cox Automotive.
The increase is mainly a function of the financing arms of auto manufacturers offering fewer low rate offers, Smoke said.
He is not expecting any improvement after an October rate cut. It is more likely, he said, that auto loan rates remain about where they are until December.
More year-end offers, including low rate incentives from financing arms, could pull the average down. Those rate offers are usually only available for borrowers with great credit.
“Spring will have more potential for lower rates,” Smoke said.
By then, he expects that the Fed will cut short-term rates at least three more times — an October rate cut, a rate cut after the two-day Dec. 9 and Dec. 10 meeting, and another rate cut in early 2026.
“With the start of the year, consumers will benefit from higher take-home pay from declining withholdings, and then tax refunds are expected to grow substantially to a record average refund above $4,000,” Smoke said.
Overall, he said, that should mean that loan performance improves, and lenders could pivot from being risk averse. If so, auto loan rates could likely end up lower by a percentage point or more in early 2026, Smoke said.
What’s next for the Fed?
The Fed’s in an odd spot, according to economists. President Donald Trump has done all he can to bully Fed officials into cutting interest rates more drastically. But Fed officials also know that higher tariffs can lead to higher prices and, ultimately, drive up inflation.
“Beyond the October cut,” Sohn said, “the outlook for the Fed policy is murky.”
Inflation hasn’t yet convincingly returned to the Fed’s 2% inflation target. And cutting too much too soon, he noted, could revive inflation pressures.
If the Fed cuts rates deeper than expected, Sohn said, Wall Street could interpret the move as a signal that the Fed is worried that the economy is heading into a recession.
And that would undermine investor confidence, Sohn said.
Right now, the Fed continues to have flexibility to cut later when more economic data is available and the outlook is clearer.
“It also preserves ammunition should a sharper downturn arrive,” Sohn said.
Why do many expect the Fed to cut rates in October, just a month after the first rate cut of 2025?
Well, according to economists, things are slowing down a bit here.
“Job growth has come to a standstill,” Zandi said, “as businesses have broadly stopped hiring given uncertainty over economic policy and the economy’s prospects.”
New technology involving artificial intelligence also may be slowing down hiring of entry level workers in their 20s, Zandi said.
Another trouble spot: The Fed remains concerned, Zandi said, that if the economy were to suffer a recession, the Fed would be blamed for any job losses and business closures. And Trump might have more fuel in his effort to weaken the central bank’s independence.
Right now, the risks are high given that Trump has taken several steps to weaken the independence of the central bank already, including Trump’s efforts to fire Federal Reserve governor Lisa Cook over claims she made on two mortgage applications while she was a Michigan State University professor of economics and international relations.
Cook, the first Black woman to serve on the Fed board, was appointed to a 14-year term, but Trump maintains he has the right to fire her over allegations of mortgage fraud.
If the Fed is dubbed the culprit of a recession, perhaps by keeping rates too high for too long, Trump’s argument for gaining more control over the Fed could gather more steam on Main Street.
“The Fed has also put to the side worries that inflation, which is accelerating due to the tariffs and immigration policy, will become entrenched, as inflation expectations remain reasonably well-anchored,” Zandi said.
Zandi expects a 25-basis-point rate cut in December and three more similar rate cuts next year, bringing the target range for the federal funds rate to 2.75% to 3% by early next summer.
(This story has been updated to include new information.)
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.