Finally. The Federal Reserve delivered a long-awaited quarter-point rate cut on Sept. 17.

Wall Street expects two more rate cuts at both of the Fed's next meetings before the end of the year.

Here's how the long-running interest rate pause has impacted deposits, credit, and debt so far. And what a rate cut could do for — or to — your money.

2025 has been a year of modest earnings on deposit accounts. A rate cut won't help.

Your checking account is a money-in-motion machine. The convenience of liquidity limits your earning power.

The national average of interest paid on checking accounts has barely budged much this year and remains at 0.07%. Imagine that moving even lower. Is it possible? Yes.

Interest rates on savings accounts are only marginally better and are up a fraction to 0.40%. But savings accounts are for near-term money.

High-yield savings accounts have been more effective interest payers. Rates are still barely clinging to 4%, with some financial providers slightly above or below that.

This is one category where rate shopping really pays off. Especially as interest rates move lower.

Dig deeper: 10 best high-yield savings accounts

If you have $10,000 or more that you want to keep on the sidelines but are ready to put in play, money market accounts have been convenient — but low-paying. National average payouts remain at 0.59%.

A better option might be a high-yield money market account, where interest rates are still near or a little better than 4%.

Read more: 10 best high-yield money market accounts

CD rates have crept slightly higher in the last month or so. A 12-month CD is averaging 1.70%, but you can find better deals if you're willing to take the time to hunt them down — and move your money online.

Your minimum deposit and term will affect your rate.

Learn more: The best CD rates on the market

And then there are mortgage rates. Let's get this question out of the way: "When will mortgage rates go back down to 3%?" The quick answer: It's not likely anytime soon.

However, mortgage rates have dipped mostly lower since the end of May and are at their lowest point in nearly a year.

But the Fed cut may not be enough to significantly nudge them down much further. Mortgage rates are more influenced by the bond market, particularly the 10-year Treasury note. Its yield has already fallen nearly half a point since mid-July. That's the bond market pricing in the finally-delivered rate cut.

Housing industry analysts with the Mortgage Bankers Association and Fannie Mae predict mortgage rates to remain just above 6% through 2026.

Dig deeper: When will mortgage rates go down? A look at 2025

Personal loan rates remain relatively high following several rate hikes by the Federal Reserve over the past few years. While the Fed dropped the federal funds rate a few times in 2024, average personal loan rates have only dipped slightly — from a peak of 12.49% in February 2024 to 11.57% in May 2025 for two-year loans.

Most personal loans have fixed interest rates, meaning your rate won’t change if you’ve already borrowed the money. However, if you’re planning to apply for a new personal loan soon, expect rates to be higher than they were a few years ago. When the Fed rate cut, borrowing costs are likely to move down a bit further.

Learn more: How the Federal Reserve shapes consumer loan rates

Credit card interest impacts everyone — except those who pay off their balance each month.

Credit card rates have spiraled from around 15% in 2021 to over 21% in 2025.

Credit card companies are clinging to the high interest that consumers are apparently still willing to pay. It’s possible two or three rate cuts by the end of the year will move the prime rate down and push the cost of credit cards lower too.

Yahoo Finance tip: The best way to earn a lower credit card interest rate right away is to ask. If you make regular payments and have seen your credit score improving, it's a good time to call your credit card provider and ask for a lower interest rate.

Stock prices often react to the Fed’s rate actions, but they are only one factor among many affecting the investing climate and stock prices.

If you intend to manage your investments to suit the current environment, keep watch on broader economic and corporate profit trends alongside interest rates. If you prefer to stay conservative, fill your portfolio with high-quality stocks that have proven themselves in all economic cycles.

Then, wait patiently for long-term growth.

The Federal Reserve, or “the Fed,” is the central bank of the U.S. and plays an outsized role in shaping the nation’s monetary policy. One of its key functions is setting interest rates. Those rates determine how much Americans earn on their savings and how much they pay to borrow — including when buying a home. The Fed indirectly impacts mortgage rates by setting what’s called the federal funds rate, and that rate impacts a wide variety of financial products. As a result, when the fed funds rate rises and falls, so do the rates Americans pay on home loans.

Read more: How are mortgage rates determined? It’s complicated.

In this article:

What does the Federal Reserve do?

The federal funds rate

Fed rates and mortgage rates

Do mortgage rates go down when the Fed cuts rates?

Tips for borrowers

FAQs

To understand how the Federal Reserve works, think of the U.S. economy as a farm and the Fed as a farmer in charge of water, representing money and credit. “Our farmer wants enough water flowing into the farm so that the crops grow. Think of that like job creation and economic growth,” said Corbin Grillo, a certified financial analyst with Linscomb Wealth, via email. If the farmer (the Fed) leaves the faucet on full blast, the crops will flood, causing inflation. If the farmer doesn’t water the crops enough, they’ll wither, causing a recession.

The Fed’s job is to continuously make decisions that keep the right amount of water (money and credit) flowing so that its crops (the U.S. economy) grow and thrive.

Dig deeper: Do mortgage rates decrease in a recession?

To control the flow of water (money and credit), the Fed sets the federal funds rate, a benchmark interest rate that affects multiple parts of the economy. Consumers can see the impacts of the fed funds rate on products, ranging from savings accounts to mortgage rates.

And although the federal funds rate doesn’t affect mortgage interest rates as directly as savings or personal loan rates, it does have an influence. (More on that later.)

If the economy is dry — that is, if people aren’t spending money — the Fed adds more water by lowering the fed fund rate to encourage people to spend. Low interest rates make it less expensive to borrow money, so people tend to spend more freely and use credit to make larger purchases. However, if the economy starts to flood because people are spending too much, the Fed dials back the water to keep the crops (economy) alive by increasing the fed funds rate. Higher interest rates encourage people to save instead of spend because borrowing money is expensive.

While the federal funds rate had been at a 23-year high since July 2023, the Fed finally lowered it at its meetings in September, November, and December 2024. The central bank left the rate unchanged at its first five 2025 meetings before finally cutting it by 25 basis points at its September meeting.

Read more: When is the next Fed meeting?

Remember how we said that the Fed doesn’t directly set mortgage rates? It’s true. However, the fed funds rate impacts the yield on the 10-year Treasury note, which directly affects what consumers pay when they borrow money, said Kevin Khang, senior international economist with Vanguard, in a phone interview.

“[The] 10-year rate, the yield on that note, is kind of like the absolute minimum people should expect to pay when they borrow,” Khang said. “It serves as a benchmark, and everyone else should expect to pay a little more.” Why more? The middlemen. “Lenders have to get compensated for taking on the credit risk for homeowners.”

So, let’s look at how the 10-year Treasury and mortgage rates have moved together in the past few years. In May 2020, the fed fund rate dropped to 0.05%, and the 10-year Treasury yield was roughly 0.64%. The average rate on a 30-year fixed-rate mortgage at the time was 3.28%. Now, let’s look at the last six months or so.

Inflation meant that the Fed needed to dial back the water, so it raised the federal funds rate. As of early August 2024 (before the Fed finally cut the rate in September), the 10-year Treasury yield was 3.99%, and the 30-year fixed rate was 6.73%.

As of mid-September 2025, the fed funds effective rate was 4.33%, and the 10-year Treasury was 4.06%. The average 30-year fixed mortgage rate was then 6.35%.

The 10-year Treasury yield and mortgage rates also tend to increase when the federal funds rate increases. However, the inverse is also true.

Usually, the simple answer is yes — mortgage rates tend to go down when the Fed cuts interest rates. Or rather, mortgage rates typically decrease before an anticipated Fed rate cut.

However, right now, the answer is: It depends. There's a lot going on in the U.S. economy that impacts mortgage rates other than the Fed rate. Investors' assessments about what Trump is doing in office are affecting the 10-year Treasury yield, and Trump and the Federal Reserve have a complicated relationship. A lot is up in the air about how the latest and future Fed rate cuts will impact mortgage interest rates.

Learn more: Will mortgage rates go down in 2025?

Now that you understand the connection between Fed rates and mortgage rates, what should you do with this information? Here are some ideas to consider as you look to purchase or refinance a home in today’s economy.

“We generally wouldn’t recommend consumers spend much time worrying about things that are out of their control,” said Grillo. Since you have no impact on the federal funds rate or the 10-year Treasury yield, it’s better to focus on things in the mortgage process under your control.

Comparing mortgage lenders, interest rates, and closing costs can help you find the best possible product for your credit score, market, and financial situation.

Over the past few years, adjustable-rate mortgages have fallen out of favor as interest rates climbed. Now, these mortgages could help first-time buyers and those refinancing ride an anticipated wave of declining interest rates. Popular mortgages for first-time buyers, like VA and FHA loans, offer adjustable-rate products.

While there’s no guarantee that mortgage rates will decrease, you may want to consider an adjustable-rate loan. A conversation with a mortgage professional can help you understand your options.

If you value consistency and predictability, you may be better off with a fixed-rate mortgage if rates trend downward. With the Fed’s conservative outlook on cutting rates, how long should you wait before locking in a mortgage rate? Khang said the decision is personal and depends on your needs and finances. If you need to move, you may take today’s best rate and hope to refinance into a lower rate later.

Others may have more flexibility. Khang said that those who don’t need to buy now may want to hold out for at least a year now that the Fed has started cutting rates. “Financiers can take some time to adjust their spread [between the 10-year Treasury and mortgage rates],” Khang said. “So, it can take some time for lenders to catch up with lower rates.”

Dig deeper: Adjustable-rate vs. fixed-rate mortgage — Which should you choose?

The Federal Reserve sets the federal funds rate. That rate influences the yield on the 10-year Treasury note, which serves as the index for most mortgage rates in the U.S. As the fed funds rate increases and decreases, so does the yield on the 10-year Treasury; mortgage rates tend to follow the same trends.

If interest rates drop, your mortgage payment may go down if you have an adjustable-rate mortgage. However, if your current mortgage is a fixed-rate product, your interest rate remains the same for the life of your loan unless you refinance to a loan with a lower rate.

The Federal Reserve tends to have the most control over housing interest rates in the U.S. It sets the federal funds rate, which influences rates on various products, including government securities, savings accounts, and loans. As the fed funds rate rises and falls, so do mortgage rates.

Laura Grace Tarpley edited this article.

On December 18, the Federal Open Market Committee (FOMC) lowered its benchmark interest rate by 25 basis points or 0.25%, to a range of 4.25% to 4.50%. The move follows a 50-basis-point reduction in September and a 25-basis-point reduction in October.

The cut was expected by investors based on Fed cues earlier in the year. The committee adjusts interest rates in part to encourage a long-term inflation rate near 2%. After three years of inflation above 3%, the rate of price increases fell to 2.4% in September 2024 before rising to 2.7% in November.

The Fed also indicated there would likely be only two rate reductions next year rather than four as previously predicted. The more conservative approach is prompted by the recent uptick in inflation and uncertainty over the outcomes of President-elect Trump’s policies.

The big question investors are asking is how these lower rates could affect their portfolios and investment strategies. Let's provide answers with a closer look at how the stock market typically responds to falling interest rates.

Latest news: Cautious Fed holds rates steady with Trump unknowns looming over outlook

When the Fed cuts interest rates, banks lower the rates they charge on loans made to their customers. On existing variable-rate debt, the reductions are immediate. In this case, business and consumer borrowers quickly benefit from lower ongoing interest expenses. New fixed-rate loans also get cheaper, but existing fixed-rate borrowings are not affected. Fed rate cuts can, however, create opportunities to refinance fixed-rate loans at lower interest rates.

In short, rate cuts lower the cost of borrowing. Cheaper debt is usually good for business, but the reason for the rate reduction influences how corporate leaders and investors respond.

If the Fed lowers rates because inflation is slowing, the response should be positive. Businesses are likely to pursue growth more aggressively. Investors, expecting higher earnings ahead, may funnel more capital into the stock market. This can push stock prices higher.

Lower rates can negatively affect the stock market when they are prompted by an economic slowdown. When the economic outlook is uncertain, corporate leaders and investors can be more cautious about investing in growth.

According to Robert R. Johnson, CEO and chair of active index strategy developer Economic Index Associates, "historically speaking, equities perform substantially better when the Fed is lowering rates rather than when the Fed is raising rates."

Learn more: What is the Federal Reserve?

Investor expectations heavily influence stock prices. For this reason, the effects of a rate change usually begin well before the Fed acts.

When investors expect a rate reduction and the economic outlook is good, stock prices rise. Once the Fed implements the cut, the after-effects can be minimal. The exception is if the rate reduction is more or less aggressive than investors had expected. In that case, the market may shift again as investors adjust to new circumstances.

Learn more: Your step-by-step guide to investing

Johnson, who has extensively studied how the Fed's policies affect stock market returns, identifies the best-performing sectors when interest rates are falling as autos, apparel, and retail.

Johnson also sees opportunity in real estate investment trusts or REITs, particularly mortgage REITs. "With rates expected to continue to fall in 2024 and beyond, both equity REITs and mortgage REITs could be attractive investments," Johnson said.

Learn more: How to invest in real estate: 7 ways to get started

David Russell, global head of market strategy at trading platform Tradestation, expects lower rates to benefit cruise ship operators and airlines. "They're economically sensitive and have significant debt loads," Russell said. "Lower inflation will help their profitability, while lower rates could reduce their borrowing costs."

To summarize, lower interest rates are particularly good for real estate values and companies that rely heavily on debt or discretionary consumer spending.

Investors routinely adjust their holdings and trading behaviors according to their economic outlook. This is evident in the market movements that follow reports on inflation, jobs, and gross domestic product.

Learn more: Jobs, inflation, and the Fed: How they're all related

As an example, the S&P 500 experienced a single-day decline of 3% in early August 2024 after a disappointing July jobs report sparked recession worries.

Market shifts prompted by investor-sentiment trends can encourage many to wonder what moves they should be making ahead of Fed-rate actions. The right answer depends on the investor's timeline and strategy.

Learn more: When is the Fed’s next meeting?

Investors who need to maximize income or growth within a relatively short timeline may see the opportunity to adjust holdings according to the interest rate climate.

Commonly, this involves shifting exposure between stocks and bonds. Bonds are favored when interest rates are rising, while stocks become popular as interest rates fall.

On the other hand, long-term investors with high-quality, diversified portfolios may want to avoid big changes in response to rate adjustments. Overhauling a portfolio based on temporary conditions can easily undermine results over time.

Lane Martinsen, founder and CEO of Martinsen Wealth Management LLC, describes the dangers of making short-term decisions for long-term portfolios.

"Reacting to rate changes can lead to emotional decision-making, which can harm long-term performance," Martinsen said. "Frequent buying and selling to 'time' the market often results in higher costs, taxes, and missed growth opportunities."

Long-term investors might instead rely on changing economic conditions to prompt periodic reviews of their portfolio composition or asset allocation. If the allocation is performing and the risk profile is acceptable, few to no adjustments are needed.

Still, a proven allocation strategy may allow for small changes to improve performance as interest rates evolve. In this scenario, Johnson recommends adjusting sector exposure.

Specifically, when interest rates are expected to drop over time, investors could reduce financial and utilities holdings while increasing exposure to autos, apparel, and retail — sectors that have historically shown strength in falling rate environments.

Investors can implement sector-based adjustments without changing their relative exposures to broader asset classes, such as stocks, bonds, and alternative assets. Doing so should keep the portfolio's risk and appreciation potential fairly stable, which is critical for long-term growth.

With fewer rate reductions now expected in 2025, any boost to earnings or bond prices next year will be more muted. There are also other, potentially offsetting, factors in play. Two to note are high valuations in the S&P 500 and unknown outcomes from any policy changes made by the new president. Major portfolio or strategy changes at this point could be premature. This may be the time for investors to focus on the long-term rather than chase uncertain gains.

Knowing how the Federal Reserve’s monetary policy decisions impact your interest earnings over time is key to making an informed decision about where to put your money. And with a rate cut on the horizon, the best option may be a certificate of deposit (CD).

CDs can be a smart way to guarantee steady returns, especially if interest rates are expected to fall in the near future. Here's why you may want to consider opening a CD before the Fed's next meeting.

The federal funds rate is the target interest rate set by the Federal Reserve. It determines the rate that banks charge one another to borrow funds overnight in order to meet reserve requirements.

The federal funds rate is expressed as a range, which is currently 4.25%–4.50%. Banks negotiate a specific rate between each other within that range.

The Fed uses the federal funds rate as a tool to quell inflation. When inflation is high, the Fed raises its target rate to make borrowing money more expensive, which discourages consumer spending and helps bring everyday costs down. When the economy needs a boost, the Fed might initiate a series of rate cuts to encourage more spending and borrowing.

Read more: A look at the federal funds rate over the past 50 years: How has it changed?

Changes to the federal funds rate have major implications for financial institutions and the economy at large. But these decisions also affect your bottom line.

Although the Fed’s rate doesn’t directly impact the interest rates set by individual banks for consumer deposit accounts and loans, they are closely correlated. When the Fed raises its rate, for example, interest rates on deposit products — including CDs — also tend to go up. And when it lowers its rate, deposit interest rates generally fall.

The Fed will meet again on September 16-17 and decide whether or not to adjust the federal funds rate. In its last meeting, the committee held the target range for the federal funds rate steady at 4.25%–4.50%, which it has maintained since the last rate cut in December 2024.

As economic activity continues to expand at a solid pace, many wonder whether the Fed will cut its target rate this year. In its last meeting, the committee released the following statement:

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

Many experts believe the Fed will cut its rate in its September meeting, especially in light of a weak jobs report released earlier this month.

Even so, we can’t know for sure what will happen. So, while you wait for the Fed’s official announcement about how rates will change (or not), it could be a good time to evaluate where you're currently keeping your savings and consider opening a new CD.

Should the Fed decide to keep rates the same, it won’t have a direct impact on CD rates, which means now is as good a time as any to open an account and take advantage of historically high interest rates. As it stands, the best CD rates today hover around 4% and up.

However, if the Fed does decide to lower rates, now might be your last chance to lock in today’s competitive CD rates.