If you’re feeling squeezed by high borrowing costs, you’re not alone. From mortgages and car loans to credit card balances, rates have been sky-high for what may feel like far too long.

And with the latest Federal Reserve meeting concluding this week, many Americans are wondering: Are interest rates finally dropping?

Following three cuts to the federal funds rate in 2024, the Fed has held the federal funds rate steady so far this year. But with the economy showing signs of improvement, many hope some relief could be on the way. So, when might the Fed actually start cutting rates — and what would that mean for your wallet?

In September 2024, the Fed cut its rate for the first time in four years by a whopping 50 basis points. It made two more 25 basis point cuts in November and December, bringing the target federal funds rate range to 4.25%-4.50%. However, it has held rates steady since then.

Why? Though inflation has cooled since its early‑2020s peak, it’s still above the Fed’s goal of 2% (2.7% year over year in June). Fed officials are also concerned about the uncertainty caused by new and pending tariffs, which could push inflation higher down the line.

The Federal Open Market Committee (FOMC) — the branch within the Fed responsible for monetary policy decisions — voted 9–2 to maintain the current rate in its July meeting. The two dissenters were governors Christopher Waller and Michelle Bowman, who called for an immediate 25 basis point cut. That was the first dual dissent from board members in more than 30 years.

Despite disagreement within the FOMC and increased pressure from President Trump, Fed Chairman Jerome Powell has remained committed to his wait-and-see approach regarding future rate cuts.

“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,” the Fed said in a recent statement.

So, additional rate cuts are likely on the horizon, though maybe not as soon as some hoped or expected. When the Fed does eventually cut its benchmark rate, we can expect interest rates on consumer loans and deposit accounts to continue falling as well.

As rates drop, it’s important to consider how those changes will impact your own wallet.

Your savings account might earn less: When the Fed lowers its rate, banks typically lower interest rates on their products, including deposit accounts. So, the interest rate you earn on your high-yield savings account, money market account, or certificate of deposit (CD) will likely decrease. The weeks leading up to a potential rate cut could be a good time to reevaluate your account options and consider one with a fixed rate, like a CD, which allows you to lock in a higher rate for several months or years.

Your credit card interest rate may change: The federal funds rate can also impact your credit card interest rate. If you’re carrying a balance, the good news is that lower rates mean your balance won’t accumulate interest as quickly.

You may get a better rate on a new loan: If you’re hoping to secure the lowest possible rate on a new mortgage, car loan, or personal loan, taking advantage of a decrease in interest rates can save you money in interest over time and shorten your repayment timeline. If you have an existing loan, refinancing may allow you to achieve a lower interest rate and free up cash flow.

Read more: Understanding the Fed's rate decisions: Do we want high or low interest rates​?

The Federal Reserve's published plan to deliver two interest rate cuts this year will come down to three remaining meetings following the July 30 no-action decision.

Wall Street is betting on two quarter-point rate cuts in September and December. Here's how the long-running interest rate pause is impacting deposits, credit, and debt.

The interest you earn on deposit accounts is meager to practically non-existent.

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

The national average of interest paid on checking accounts remains at 0.07%.

Interest rates on savings accounts are a little better, currently holding at 0.38%. But this is not where savvy savers keep serious money.

High-yield savings accounts have been resilient money havens. They're still in the 4% range, with some financial providers slightly above or below that.

This is one category where rate shopping really pays off.

Dig deeper: 10 best high-yield savings accounts

If you have $10,000 or more that you want to keep on the sidelines but nearby, 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 rates are still near or a little better than 4%.

Read more: 10 best high-yield money market accounts

CD rates haven't moved much lately. A 12-month CD is averaging 1.63%, but you can find better deals if you're willing to take the time to hunt them down — and park your money in a bank that may not be in your time zone.

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%?"

It’s hard to say with home loan rates still hovering in the upper-6% range.

Whenever the Fed does cut short-term interest rates, it may not be enough to significantly budge mortgage rates. Those are more influenced by the bond market, particularly the 10-year Treasury note, which reacts to forecasts for economic growth — or the lack of it.

Housing industry analysts with the Mortgage Bankers Association, Redfin, Realtor.com, and Zillow expect mortgage rates to remain in the 6% to 7% range through the end of this year.

Dig deeper: When will mortgage rates go down?

Personal loan interest rates have been lingering near 12% for nearly two years. They were around 9.5% for three years, from 2020 to 2022.

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. There's been no movement downward, even with last year's Fed rate cuts. Perhaps a couple of 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.

A hot job market is usually good news for workers. When the unemployment rate is low, people can easily switch jobs and negotiate better pay from employers. Workers have more money to spend, which drives economic growth.

But low unemployment and strong job growth 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.

Meanwhile, an uptick in unemployment can have a silver lining: When inflation slows and jobless numbers increase, the Fed moves to lower interest rates, just as it did following its November meeting, reducing interest rates by 25 basis points. The Fed has held its key rate steady in 2025 with the low end of its target federal funds rate at 4.25%.

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 labor market adds 147,000 jobs in June while unemployment falls to 4.1%

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.

Learn more: When the Fed cuts rates, how does it impact stocks?

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 as inflation has cooled, the Fed’s goal of full employment has come into greater focus. Federal Reserve Chair Jerome Powell cited a slowdown in hiring and an increasing unemployment rate — which stood at 4.1% in December and ticked down to 4% in January. The labor market continued to show surprising resilience in June, with U.S. employers adding 147,000 jobs and the unemployment rate at 4.1%. In other words, it's still relatively low.

Back in 2022, when the Fed first started hiking interest rates, many economists believed a recession and higher unemployment were ahead. Thus far, though, neither has materialized. Instead, the US economy actually grew by 3.1% in 2023. S&P Global Ratings forecasts growth of 2.7% 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. These sectors have been hiring in large numbers. 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 locked in 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.

There’s no shortage of speculation about where interest rates are headed. But in his comments following the January meeting, Powell said the Fed is not looking too far ahead.

“As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Policy is well-positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate."

Read more: Chair Powell’s press conference transcript

The Federal Reserve lowered the federal funds rate for the third time this year — and there may be more cuts next year.

Rate cuts can be cause for celebration, particularly if you're planning to buy a home or pay off debt. But you can also expect to earn less interest on bank deposits and some investments. In other words, now is a good time to reevaluate where you keep your savings and look for ways to maximize your interest earnings.

Interest rate reductions have several implications when it comes to banking and borrowing money. Here's what you can expect after a rate cut from the Fed:

Loans: If you have a fixed-rate loan, nothing will change. However, if you want to take out a new mortgage or car loan, for example, or refinance an existing loan, the interest rates offered by lenders will be lower. As a result, it's more affordable to borrow money since you’ll accrue less interest — and monthly loan payments may be lower, too.

Bank accounts: The annual percentage yield (APY), or interest you earn on bank deposits, decreases. As a result, you'll earn less on the cash you keep in your checking and savings accounts.

Low-risk investing: If you already have an investment account that gives you guaranteed returns, such as a certificate of deposit (CD) or Treasury bill, your rate will stay the same. However, the rates offered on new accounts will begin dropping.

The upcoming Fed rate cut is expected to be conservative, so you may only see gradual changes to your interest rates in the short term. However, more cuts are likely to come, so now is a great time to lock in high rates and prepare your next steps.

For your day-to-day cash and emergency savings, it's best to keep the money in the bank, since you need to maintain easy, penalty-free access to your funds.

But as banks reduce the interest rates offered on deposit accounts (which they can do at any time), your balances will earn less. As a result, you'll want to check the APY on your bank accounts and shop around to see if you can earn a higher rate elsewhere. Here are some bank accounts that might earn more than your regular checking or savings:

High-yield checking

High-yield savings

Online bank accounts

Read more: How do banks set their savings account interest rates?

When it comes to money you don't plan to use within the next few months, consider moving it out of your savings account and into a CD right away. By doing so, you could lock in around 4% APY or higher before rates take another hit.

In addition to comparing rates, look for CD accounts with longer terms, since the goal is to retain your high rate long past any future rate cuts.

This strategy is particularly useful for anyone who's been saving for a down payment on a home. By moving your savings into a CD, you can lock in a high APY while waiting for mortgage rates to drop. If you're not exactly sure when you'll need your money, you might also consider CD laddering, or opening up multiple CDs with staggered maturity dates.

Like CDs, Treasury bills are a good choice if you're saving up for a future expense and you want to lock in high rates before they start falling. At present, you can still get above 4% on several T-bill terms. However, the Fed's rate cut means these rates won't stay for long.

Before you buy a T-bill, compare the rates and terms with available CDs to see where you can maximize your earnings. And keep in mind that you don't have to pay state or local taxes on T-bill earnings.

Read more: CDs vs. Treasury bills: Maximizing your savings

As rates fall, you'll have to increase your risk in order to maintain or beat what you've been earning on cash deposits and fixed-income assets. That means that when your current CDs, T-bills, and bonds mature, you may want to move the money to your stock portfolio.

While rate cuts tend to be good for the stock market, it's too soon to tell how it will respond over the coming months. In other words, some patience is required. But while you're waiting to see how the market stabilizes, some experts suggest investing in stocks that are more sensitive to rate cuts, such as real estate investment trusts (REITs) and small caps.

Read more: High-yield savings account vs. investing: Which is right for you?