After holding the federal funds rate steady throughout 2025, the Federal Reserve decided to cut its benchmark rate by 25 basis points in September, bringing the target range to 4%-4.25%.

As a result, interest rates on credit cards, loans, and deposit products will fall — good news for borrowers, but not so great for savers. That’s a stark contrast to last year, when it was more expensive to borrow money, but you could also earn above 5% on your savings.

Understanding the pros and cons of high versus low interest rates is key to making informed decisions, whether you're saving for the future or managing debt. So, do we want higher or lower rates? The answer isn’t exactly simple.

The Federal Reserve is mandated by Congress to promote stable prices and maximum employment within the US economy. One of the tools it has at its disposal to achieve these goals is the federal funds rate.

During times of high inflation, for instance, the Fed will raise its federal funds rate, which is the rate banks charge each other for overnight loans to meet cash reserve requirements.

When the federal funds rate increases, financial institutions also increase interest rates on certain types of loans, such as credit cards, auto loans, personal loans, and, less directly, mortgages. Many of them also increase the interest rates on their savings products to expand their lending capacity. This makes it more expensive for Americans to borrow money, but it also means they can earn more on their savings balances.

On the other hand, if the Fed wants to stimulate economic growth, it will lower the federal funds rate. When this happens, loan interest rates also go down, encouraging borrowing and spending among consumers and businesses. The downside is that deposit accounts pay less interest, stunting savers’ ability to grow their savings.

Read more: Fed rate cut: How it affects your bank accounts, loans, credit cards, and investments

Depending on your situation, higher interest rates can either help or hurt your financial well-being. Here are some benefits and drawbacks to consider.

Better savings rates: If you have a lot of cash in savings, you may benefit from higher rates. In some cases, high-yield savings accounts can offer rates roughly 10 times the national average (or higher).

No impact on existing fixed-rate loans: If you took out a loan with a fixed interest rate before market rates started to climb, your monthly payments won't be impacted.

Incentivizes financial discipline: Higher borrowing costs can help discourage taking on impulsive or unnecessary debt, prompting you to focus more on budgeting and saving.

Read more: 10 best high-yield savings accounts available today

New loans are more expensive: If you take out a new loan when interest rates are elevated — whether it has a fixed or a variable interest rate — you’ll be charged a higher APR, even if you have excellent credit. This may translate to higher monthly payments, spending more in interest over the life of the loan, and/or having to take out a smaller loan to compensate for the increased costs.

Tighter budget: Larger monthly payments on your loans and credit cards could put a strain on your budget, making it more difficult to cover your essential expenses and keep up with debt obligations.

Other financial challenges: The Fed often increases interest rates during periods of inflation, which means that you could be struggling in other areas of your budget. Minimizing debt is crucial during these periods of economic turmoil.

Read more: How to protect your savings against inflation

While there are clear benefits to lower interest rates, there are also some potential disadvantages to keep in mind.

New loans are more affordable: If you take out a loan or credit card during a period of low interest rates, you can expect a lower monthly payment, which puts less of a strain on your budget. Plus, you’ll pay less in interest overall.

Variable-rate loans may become cheaper: If you have a credit card or other type of variable-rate loan, your interest rate will typically start to come down soon after the Federal Reserve cuts interest rates. Lower payments can give your budget some more breathing room.

Refinancing opportunities: If you took out a fixed-rate loan during a period of high interest rates, you may have the opportunity to refinance your debt with a lower interest rate, reducing your monthly payment and saving money on total interest charges.

Read more: Is now a good time to refinance your mortgage?

Savers won't earn as much: With lower interest rates, you likely won't earn much on your savings account, money market account, or certificate of deposit (CD).

Possible strain on retirees: Those who rely on interest income from savings and bonds will see reduced returns, which could impact their ability to cover living expenses.

Risk of inflation and asset bubbles: When interest rates are lower, spending generally increases, which could cause prices for goods and services to rise. Additionally, lower borrowing costs can lead to inflated prices for real estate and other assets.

Read more: How to maximize your savings following the Fed's rate cut

There’s no right answer when it comes to whether a high or low interest rate environment is best. Ultimately, it depends on what is best for the current economic situation, as well as your personal financial goals and needs.

Typically, low interest rates are best following an economic downturn when the Fed needs to stimulate economic activity. At the individual level, low interest rates are ideal if you’re interested in taking out a large loan (such as a mortgage) or could benefit from refinancing an existing high-interest loan.

On the other hand, high interest rates are good for managing inflation and stabilizing prices. If you’re trying to save more money and looking for low-risk ways to grow your wealth, higher interest rates can help too.

The Fed cut the federal funds rate for the first time this year in September by 25 basis points. However, interest rates remain high by historical standards. What's more, the inflation rate's downward trend has stalled in recent months.

As a result, the Fed indicated it may be more cautious about future rate cuts. So what does that mean for you and your money? Here are some steps you can take to make the most out of the current interest rate environment:

If you don't have a high-yield savings account, you may not be benefiting from elevated savings account rates. Although these rates will go down over time as the Fed continues cutting the federal funds rate, it's unlikely to happen quickly. And even in a low-rate environment, high-yield savings accounts remain one of the best options for earning the highest return possible on your savings.

Unlike savings accounts, CDs allow you to lock in a specified interest rate for a set period of time. CD terms can be anywhere from one month to several years in the future. However, be sure to choose a CD term that fits your savings timeline, as withdrawing your money before the maturity date will result in a penalty. These are our picks for the best CD rates.

While the inflation rate is still elevated, it's important to minimize your expenses where possible so you can avoid taking on more debt than necessary.

If you're thinking about buying a home, it's important to note that mortgage rates aren't directly influenced by the federal funds rate like other forms of debt. Instead, mortgage lenders use the 10-year Treasury yield as a benchmark.

While the federal funds rate has some influence on the 10-year Treasury yield, Fed rate cuts won't necessarily result in lower mortgage rates, so don't jump into a home unless you're absolutely ready.

Read more: How the Federal Reserve rate decision affects mortgage rates

A stagnant labor market is tough going for job seekers. Firms are slow to post positions and slow to fill them. As job searches drag on, more people file for unemployment assistance.

But on a macro level, an uptick in unemployment can have a silver lining: When inflation slows and jobless numbers increase, the Fed moves to lower interest rates. That injects more money into the economy and, in theory, prompts firms to hire more workers.

On the other hand, strong job growth and low unemployment have a downside: A robust job market can drive higher inflation, setting the Federal Reserve on a course to try to reduce it — which can mean a longer wait before interest rates come down.

If the latest job numbers have you wondering about the interplay between the labor market, inflation, and the Fed — you don’t need to dig out your old macroeconomics textbook to find out. We’ll explain how the job market and inflation are connected, and how the Federal Reserve uses interest rates to influence them both.

Latest news: US economy adds 22,000 jobs, unemployment rate hits 4.3% in August

A strong job market can drive inflation higher, but high inflation can also reverberate through the US labor market.

A tight labor market is typically defined by low unemployment rates, an increase in job openings, and faster-than-usual wage growth. Businesses need to hire more workers to keep pace with surging demand. As businesses are forced to compete for workers, they’re more likely to offer wage increases and higher pay. After all, if your boss refuses to increase your pay, you can easily take your services to a different employer.

Workers, in turn, have more money to spend, which pushes prices higher. Inflation, after all, is often described as too much money chasing too few goods.

Meanwhile, higher labor costs add to the cost of doing business, said Christopher Decker, Ph.D., a professor of economics at the University of Nebraska-Omaha. “Businesses either have to reduce production, [which] typically involves cutting costs elsewhere, increase prices, or both.”

But high inflation also influences the job market, often drawing more people into the workforce in the short run.

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

“High inflation will usually lead to an increase in the number of workers to take advantage of the higher wages being paid,” said Thomas Stockwell, Ph.D., an assistant professor of economics at the University of Tampa who studies monetary policy. “However, as workers realize their purchasing power has been eroded by inflation, they will be less willing to work.”

Most consumers generally can’t absorb higher prices forever, though. So eventually, they’ll have to cut their spending in response to rising prices.

“Higher prices will eventually slow, or even reverse, demand growth,” Decker said. “With less demand, the need for more labor is reduced.”

That’s a big reason the Fed kept interest rates at a 23-year high until recently — to the frustration of many would-be homeowners and other borrowers.

“By reducing demand for goods, services, and business investments, there’s less pressure on both wages and prices, so inflation slows,” Decker said.

Fed policymakers have a dual mandate from Congress to promote stable prices and maximum employment.

When inflation is high, the Federal Reserve raises the federal funds rate with the goal of cooling off spending. The federal funds rate is the amount banks charge one another for overnight loans. When banks pay more to borrow money, they pass the cost on to consumers in the form of higher interest rates, making it more expensive to borrow money.

The idea is to tame price increases by getting consumers to scale back on spending. If fewer people are making big purchases, theoretically, prices will grow at a slower pace.

The Fed was laser-focused on inflation in the aftermath of COVID-19 lockdowns when soaring energy prices and supply chain disruptions led to the highest inflation levels in decades. That’s why the Fed raised interest rates 11 times between March 2022 and July 2023.

Learn more: The Fed rate cut: What it means for your bank accounts, loans, credit cards, and investments

But the Fed walks a delicate tightrope when it hikes interest rates. In response to a drop in consumer demand, businesses may reduce hiring, causing the unemployment rate to spike. If consumer spending is weak and the unemployment rate is high, the central bank will often cut interest rates in response.

For example, the Fed slashed interest rates to nearly zero in response to the financial crisis of 2007-09 and the COVID-19 pandemic.

The Federal Reserve’s target inflation rate is pretty clear-cut: Since 2012, it has aimed for a 2% inflation rate as measured by the price index for Personal Consumption Expenditures, or PCE. The PCE has been inching closer to that level. Though it remains above the Fed’s 2% target, it’s still well below its recent peak of over 7% in June 2022.

Watch and learn: How 2% became the Fed’s inflation target

The definition of maximum employment, on the other hand, is a lot murkier.

“There is not an explicit target for unemployment like there is for inflation,” said Stockwell. “But to keep inflation steady, it is important to keep the unemployment rate as close to the natural rate of unemployment as possible. This is the unemployment rate that would exist if there were no shortages or surpluses in the labor market.”

Maximum employment isn’t 0% unemployment, Stockwell said, because some unemployment is healthy. There will always be what economists call frictional unemployment, which is driven by people in transition, i.e., you quit your job to find new opportunities or you’re a recent college grad searching for employment.

Some structural unemployment, which is when workers lose jobs due to factors like technological developments, globalization, or widespread changes in consumer demand, will always exist as well.

“Full employment is when the only people unemployed are those who are frictionally or structurally unemployed,” Stockwell said.

But in the second half of 2025, it's clear the labor market is slowing. Weekly jobless claims hit 263,000 in early September, the highest level in nearly four years. Preliminary estimates from the Bureau of Labor Statistics show almost a million fewer jobs were added in the 12 months through March 2025. And the slowdown is still underway: Payrolls grew by just 22,000 in August, averaging a meager 29,000 over the past three months.

Back in 2022, when the Fed first started hiking interest rates, many economists believed a recession was coming. Thus far, though, it hasn't materialized. The US economy actually grew by 3.1% in 2023 and 2.8% in 2024.

So what gives?

Economists are quick to point out that even at recent peaks, interest rates weren’t that high by historical standards. The economy experienced about 15 years of unusually low interest rates before rates started rising, Stockwell said.

“We don't have high interest rates right now,” Stockwell said. “We have returned to more normal interest rates.”

It’s also important to note that not all industries experience a sizzling job market at the same time. For example, sectors like healthcare, education, and state and local government tend to be relatively inflation-proof and aren’t sensitive to interest rates. Meanwhile, Big Tech tends to be interest-rate sensitive and is more likely to lay off workers in a high-rate environment.

Higher interest rates don’t always slow consumer spending by as much as the Fed would like because they don’t affect everyone equally. If you’re looking to buy a home and lock in a low mortgage, you’re struggling with credit card debt, or you’re a business owner seeking financing to expand, high interest rates are painful. But someone who obtained a low-rate mortgage in 2020 or 2021 and doesn’t carry revolving debt may be largely unaffected by high interest rates, so they can afford to keep spending, even if prices continue going up.

As expected, the Fed cut rates by 25 basis points at its September meeting and projected two more rate cuts in 2025, which would bring the benchmark rate down to a range of 3.50% to 3.75% by year-end.

The central bank also updated its projections for economic growth, inflation, and unemployment. The Federal Reserve sees core inflation hitting 3.1% this year and the unemployment rate rising to 4.5%.

The Fed also upgraded its previous forecast for US economic growth, with GDP expected to grow at an annualized pace of 1.6% this year before reaching 1.8% growth in 2026 and 1.9% in 2027.

This month, the Federal Open Market Committee (FOMC) — a division of the Federal Reserve responsible for setting monetary policy — will meet again to evaluate the health of the economy and make key decisions regarding the federal funds rate.

Following a series of interest rate hikes between March 2022 and July 2023, which were intended to help reverse rising inflation, the Fed held its benchmark rate steady for over a year. However, in September 2024, the Fed decided to lower the federal funds rate by a whopping 50 basis points. It cut its target rate by another 25 bps in November, and again in December.

However, in all of its 2025 meetings so far, the Fed has decided to keep the federal funds rate steady at a range of 4.25% to 4.50%.

These decisions impact not only how the economy functions as a whole but also everyday consumers, as they influence rates on savings accounts, credit cards, mortgages, and more.

Statements and forecasts released during FOMC meetings provide valuable information on the economic outlook. Knowing when the Fed meets to discuss monetary policy and make important decisions can help you get a snapshot of the economy’s overall health and adjust your own financial strategy accordingly.

Read more: Should you open a savings account or CD before the Fed's next meeting?

The FOMC holds eight regularly scheduled meetings per year. Its most recent meeting took place July 29-30, 2025. The next one is scheduled for mid-September.

Here's the Fed's full meeting schedule for 2025:

January 28-29

March 18-19*

May 6-7

June 17-18*

July 29-30

September 16-17*

October 28-29

December 9-10*

* Meeting associated with a Summary of Economic Projections.

At these meetings, policymakers assess the health of the economy by evaluating economic indicators such as the Consumer Price Index (CPI), gross domestic product (GDP), and the unemployment rate to shape monetary policy.

The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. The live press conferences held by Federal Reserve Chairman Jerome Powell are also livestreamed and recorded.

Once each meeting concludes, the FOMC releases its policy decisions at 2 p.m. Eastern time. Then the Fed Chairman holds a press conference at 2:30 p.m.

Read more: How the Federal Reserve rate decision affects mortgage rates

The next meeting is expected to provide Americans with an update on the federal funds rate. The Fed lowered its target rate in September, November, and December 2024, but did not make any new changes so far in 2025.

"In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent," the FOMC wrote in a recent statement. "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities...The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."

Experts believe that the Fed will reduce the federal funds rate again in 2025, with a strong chance of a rate cut in September. However, the number and size of these rate cuts remain to be seen.

Read more: How much control does the president have over the Fed and interest rates?

It’s not possible to predict with certainty what the Fed will decide regarding the federal funds rate. That said, many economists expect rate cuts this year.

The FOMC holds eight regularly scheduled meetings per year. But this doesn’t necessarily mean the committee will decide to change rates at every meeting. Members assess the economy's performance and the committee adjusts monetary policy accordingly.

The Fed’s current target range is 4.25%-4.50%.

You may not think much about the federal funds rate on a daily basis, but this key number impacts many areas of your financial life and the economy as a whole.

The Federal Reserve — the country’s central bank — periodically adjusts its target rate to keep the economy running smoothly and consumer prices in check. When the federal funds rate moves up or down, so do the interest rates on bank accounts and loans. In other words, changes in the Fed’s rate impact how much your savings can grow and how much you pay to borrow money.

So how does today’s federal funds rate compare to past years? Here’s a look at historical Fed interest rates so you can better understand how your bottom line is affected.

The federal funds rate is set by the Federal Reserve and dictates what a bank can charge another bank for ultra-short-term loans (usually overnight) in order to meet reserve requirements. It's expressed as a range, and financial institutions can negotiate a specific rate between each other within that range.

The Fed’s target rate also impacts the interest rates individual financial institutions set for financial products such as deposit accounts, bonds, loans, and credit cards.

Read more: Fed rate cut: How it affects your bank accounts, loans, credit cards, and investments

The federal funds rate soared in the early 1980s when inflation hit more than 13%, the highest level recorded. This marked the end of a macroeconomic period known as the “Great Inflation,” which economists believe was brought on by Federal Reserve policies that led to an overgrowth in the supply of money.

In response, the Fed raised interest rates, and the federal funds rate reached more than 19%.

In the late 1990s and into the early 2000s, there was another major economic shift when the Fed began bringing the federal funds rate down. This move was fueled by the dot-com bubble burst — a period of economic instability when investors poured capital into internet-based companies, which led to an overvaluation of many of these start-ups. Unfortunately, not all of these companies were profitable, and the fallout of this bubble burst led to many bankruptcies and a recession.

Then, following the terrorist attacks of Sept. 11, 2001, the Fed cut rates further due to widespread uncertainty and a slowdown in economic activity.

In 2007, the housing market crash prompted the Fed to once again lower its target rate to 2%. A series of rate cuts followed, eventually bringing the target range down to a range of 0%-0.25% — effectively zero — by December 2008.

As the economy recovered from the Great Recession, the Fed began slowly increasing rates again. But in 2020, the COVID-19 pandemic rocked the U.S. economy and brought about challenges such as supply-chain issues, reduced economic activity, and high unemployment. In March 2020, the Fed once again slashed rates to a range of 0%-0.25%.

Read more: How to recession-proof your savings

Beginning in 2022, the Fed pivoted sharply as inflation surged to a 40-year high. It raised the rate aggressively through 2022 and 2023, eventually peaking at 5.25%–5.5%, the highest level in over two decades. By late 2024, however, inflation had eased, and the Fed began gradually cutting rates again.

The target rate remained steady at 4.25%–4.5% until September 2025, when the Fed finally cut its rate again by 25 basis points. Now, it stands at a range of 4%- 4.25%.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen,” the Fed said in a statement explaining the decision.

The next Fed meeting is slated for October 28-29, 2025 when the Federal Open Market Committee (FOMC) will decide whether or not to further adjust the federal funds rate.

The Federal Reserve's latest "dot plot," which outlines policymakers' interest rate projections, now signals two additional rate cuts in 2025. That would bring the benchmark rate down to a range of 3.5-3.75% by the end of the year.

Even so, it's impossible to predict exactly how and when the Fed will cut rates in the future.

Read more: Why you should open a CD account before the Fed's next meeting