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From Loans to Jobs, Here’s How the Fed Rate Cut May Affect Your Wallet
By Adam Hardy, Jordan Chussler, Julia Glum, Kaitlin Mulhere, Leslie Cook, Liliana Hall, Pete Grieve MONEY RESEARCH COLLECTIVE
Here’s what to know if you’re borrowing money, saving money, buying a house, selling a house, retired, invested in the stock market and more.
The Federal Reserve cut rates for the first time in 2025 on Wednesday in a move that will send shockwaves throughout the U.S. economy. And everyday consumers are all but certain to feel the impact.
On Wednesday, the Fed announced a new target federal funds rate of 4% to 4.25%, which amounts to a quarter-point cut from previous levels. The long-awaited adjustment is intended to help the central bank satisfy its dual mandate of maintaining low inflation and high employment amid signs of a weakening labor market.
By slashing rates, the Fed is effectively making borrowing money cheaper. The idea is that the cheaper it is to borrow, the more people will spend and the more jobs will be created. President Donald Trump, in particular, is likely to welcome this news, given that he’s been demanding rate cuts for months (and been stymied as Fed policymakers have waited to see how his tariffs played out).
Although the effects on Americans’ wallets will be muted at first, Wednesday’s announcement matters because it starts to shift several big-picture financial trends — and likely will be followed by additional rate cuts in the coming months.
Here’s what to know if you’re…
…saving money
Although the Fed doesn’t directly set rates on consumer products like high-yield savings accounts, certificates of deposit (CDs) and money market accounts, its policies have ripple effects on what banks pay out. When the Fed cuts the federal funds rate, banks generally lower the annual percentage yields, or APYs, on their savings and other deposit accounts, too.
For the past few years, savers enjoyed high returns as the Fed raised rates repeatedly to rein in inflation, pushing APYs on some deposit accounts to historic highs. Now, with the Fed’s easing, savings rates are likely to start trending lower (just as the Fed’s 11 rate hikes in 2022 and 2023 pushed deposit rates up).
Fortunately, even with a cut, savers can still find competitive rates. Many top high-yield savings accounts and CDs offer rates more than 10 times the national average, with some of the best high-yield savings accounts and money market accounts offering rates over 4%. CDs let savers lock in a rate for a fixed term, shielding them if rates drop further. Since banks adjust rates differently, changes may not be immediate, giving savers a window to lock in strong rates while they’re still around.
…borrowing money
Rate cuts may be bad news for savers seeking high yields, but the opposite is true for borrowers. They benefit consumers who’ve dealt with sky-high rates on credit cards, personal loans and auto loans over the past few years.
That said, the relationship between the Fed’s benchmark interest rate and the annual percentage rate, or APR, offered on various loans isn’t perfectly linear, so you shouldn’t expect rates to fall immediately — or uniformly, for that matter. When the Fed approved a series of rate cuts in 2024, interest rates on credit cards were particularly sticky. The average dropped from a record high of 23% to about 22% so far this year, according to the Federal Reserve — but that’s still about four percentage points above what banks were charging in 2022.
For other products, lenders may have already baked in the prospect of a lower federal funds rate. Private student loan companies, for example, dropped their starting APR offers over the summer to some of the lowest rates seen in years, so it’s unlikely they’ll fall much more this year.
Generally speaking, though, if you need to borrow money to buy a car, complete a home renovation project or pay off higher-interest debt, Wednesday’s rate cut — and the possibility of additional ones later this year — improves your shot of having access to more affordable financing.
…invested in the stock market
Now that the Fed has slashed its benchmark interest rate, there are two likely outcomes investors will see in the equities market.
First, dividend-paying stocks from companies with stable cash flows should see an influx as investors vacate fixed income due to lower yields on Treasurys, CDs and bonds. Investors may want to keep an eye on Dividend Aristocrats and Dividend Kings — stocks that have increased their dividend payouts for 25 and 50 consecutive years, respectively, and that are safe bets to see inflows down the stretch.
Second, the financials sector — which is already having a strong year — will enjoy additional tailwinds. Lower rates will incentivize borrowing and refinancing, reducing corporations’ capital expenditure costs — purchases of long-term assets like real estate, machinery, vehicles and IT infrastructure — and inviting homeowners to restructure mortgage debts on friendlier terms. Subindex exchange-traded funds, such as the Financial Select Sector SPDR Fund (XLF) and Vanguard Financials Index Fund ETF (VFH), are broad, safe plays to gain exposure.
…trying to buy a house
The rate cut is unlikely to significantly move the needle on mortgage rates in the near term. That’s not to say, however, that prospective homebuyers aren’t seeing some relief from the affordability crunch they’ve been trapped in for the past two years. The expectation of a cut alone had an impact on financing costs, as mortgage lenders were lowering their rates in anticipation of Wednesday’s announcement.
Buyers shopping around for a home loan are finding mortgage rates that are more than a quarter-point lower than they were just a month ago — and more than half a point lower than they were at the start of June. These lower rates are resulting in a not-insignificant increase in a buyer’s purchasing power. According to online brokerage Redfin, would-be homeowners have added more than $22,000 to their buying budgets over the summer. Any additional decreases in rates, however small, are likely to be welcome.
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View Rates…selling or refinancing a house
Homebuyers aren’t the only ones who stand to benefit from the recent downward trend in rates. According to housing experts, homeowners who feel locked in by the ultra-low mortgage rates they snagged during the pandemic could feel more comfortable putting their homes on the market — especially if rates continue to decrease and eventually slip below 6%. The rate trade-off for a 5% or a low 6% rate could be more palatable compared to a 7%-plus one.
Homeowners who can benefit from the decline in rates, as well as any future decreases, include those who purchased homes over the past two years (when rates averaged close to or above 7%). A homeowner who owes $400,000 on a mortgage at a 7% rate, for example, would be able to shave about $145 off their monthly payment by refinancing their current loan at a 6.35% rate.
…searching for a job
The labor market has puttered to a halt, and the Fed rate cut could be interpreted as a lifeline to workers despite inflation drifting away from the central bank’s preferred 2% rate. In other words, this week’s decision wasn’t made because we have good news on inflation — it’s “because we have bad news on employment,” Claudia Sahm, chief economist at New Century Advisors and a former Fed economist, told Yahoo! Finance.
Job seekers already know this. Even though the unemployment rate is 4.3% — low by historical standards — it’s been getting increasingly difficult for folks to find a gig. According to the Department of Labor, the average duration of unemployment reached 24.5 weeks in August, the highest reading since April 2022. Meanwhile, about 1 in 4 unemployed people have been out of work for at least 27 weeks (that’s about six months).
By cutting interest rates, the Fed is trying to make it a little easier for businesses to hire more workers because, in theory, a smaller portion of their budgets would go toward debt, thus freeing up money for staff. A rate cut also aims to stimulate consumer spending, which supports economic growth and job creation.
All of that won’t happen overnight, but it could start the thaw of the hiring freeze.
…buying a car
Auto loan rates usually decline when the Federal Reserve cuts interest rates. That’s a good thing for drivers, given that car loan rates are hovering around 6.7% for new vehicle financing and 11.9% for used vehicle financing, according to Experian. Those rates are up from 4.3% and 8.6%, respectively, in 2022.
High interest rates are part of the reason car buyers are committing to record monthly payments of over $750 on average for new cars. People with lower credit scores have particularly struggled to qualify for affordable car loans in recent years.
Experts say this Fed cut should lead to lower auto loan rates, making car ownership slightly more affordable — at least on the financing piece. Gradually, that would bring shoppers back into the market.
“Interest rates for both new and used vehicles remain above historic norms, so a modest Fed rate cut won’t dramatically slash monthly payments for consumers — but it does boost overall buyer sentiment,” Jessica Caldwell, head of insights at Edmunds, said in a note this week.
Combine lower financing costs with “with sales events like model-year closeouts, Black Friday deals, and year-end promotions,” and car buying could ramp up moving toward the end of 2025, Caldwell said.
…retired
While retirees face the same pros and cons outlined above, the downsides are often more pronounced since most retirees are trying to pay down debt and boost — or, at least, maintain — their savings amid rising prices.
“Whenever you lower rates, that kind of fuels the money supply a little bit more, which can result in increased inflation,” says John Jones, a financial planner with Heritage Financial in Newberry, Florida. He adds that he’s particularly concerned about this side effect, given the possible inflationary pressures that could come from the Republicans’ massive spending bill.
What’s more, retirees’ portfolios tend to be more conservative than younger investors, meaning they have more tied up in fixed-income products (like bonds, Treasurys and CDs) where yields are likely to dip following the rate cut. Don’t make any panicked changes to your investments, though: You won’t see a dramatic effect on those products right away, as it will take time for the markets to adjust.
There will still be places to find solid yields in the bond market, including in high-quality corporate bonds and intermediate-term bonds, according to Barron’s. But retirees shouldn’t overlook the power of stocks in a declining interest-rate environment, either. If borrowing rates fall, companies can take on debt to expand business and boost profits, thereby improving stock performance.
As always, it’s important to have a plan that incorporates your goals and risk tolerance and doesn’t change simply because of the Fed’s actions or other news events, Jones says. The key is balancing the “what ifs that may or may not ever come, so you’re not having too much on the sideline lagging behind inflation and you also have enough [assets] exposed to growth to keep up with the cost of everything and to maintain your standard of living and wealth long term.”
More from Money:
Weak Jobs Report ‘Cements’ a Fed Rate Cut
Will Your Bank Raise Your Savings Rate if You Threaten to Leave?
Waiting for 0% Interest Rates? Don’t Hold Your Breath
Adam Hardy is Money's lead data journalist. He writes news and feature stories aimed at helping everyday people manage their finances. He joined Money full-time in 2021 but has covered personal finance and economic topics since 2018. Previously, he worked for Forbes Advisor, The Penny Hoarder and Creative Loafing. In addition to those outlets, Adam’s work has been featured in a variety of local, national and international publications, including the Asia Times, Business Insider, Las Vegas Review-Journal, Yahoo! Finance, Nasdaq and several others. Adam graduated with a bachelor’s degree from the University of South Florida, where he studied magazine journalism and sociology. As a first-generation college graduate from a low-income, single-parent household, Adam understands firsthand the financial barriers that plague low-income Americans. His reporting aims to illuminate these issues. Since joining Money, Adam has already written over 300 articles, including a cover story on financial surveillance, a profile of Director Rohit Chopra of the Consumer Financial Protection Bureau and an investigation into flexible spending accounts, which found that workers forfeit billions of dollars annually through the workplace plans. He has also led data analysis on some of Money’s marquee rankings, including Best Places to Live, Best Places to Travel and Best Hospitals. He regularly contributes data reporting for Best Colleges, Best Banks and other lists as well. Adam also holds a multimedia storytelling certificate from Poynter’s News University and a data journalism certificate from the Investigative Reporters and Editors (IRE) at the University of Missouri. In 2017, he received an English teaching certification from the University of Cambridge, which he utilized during his time in Seoul, South Korea. There, he taught students of all ages, from 5 to 65, and worked with North Korean refugees who were resettling in the area. Now, Adam lives in Saint Petersburg, Florida, with his pup Bambi. He is a card-carrying shuffleboard club member.
Since joining Money in 2023 as an investment editor, Jordan has specialized in a wealth of finance topics, ranging from traditional equities (stocks, mutual funds and ETFs), income investment vehicles and alternative assets to retirement savings, debt-based fixed-income securities and commodities, with a specific focus on gold and other precious metals. He takes pride in combining his personal interests and professional experience in finance and education to help readers increase their financial literacy and make better investment choices. Jordan has worked in digital publishing for 17 years after graduating from Lynn University as a member of both the Kappa Delta Pi International Honor Society and the U.S. Achievement Academy's All-American Scholar Program. He previously served as managing editor of Weiss Ratings, where he worked alongside a team of investment writers, editors and analysts to produce educational finance content and daily, weekly and monthly market news alerts. As a contributing writer for BetterInvesting Magazine, Jordan covered topics focused on the fundamentals of investing, technical and fundamental analysis, mutual funds, debt securities, dividend investing, retirement savings strategies and passive income generation. His bylines can also be seen in Apple News, Money Crashers, The Charlotte Observer, Fort-Worth Star Telegram and a dozen other newspapers.
Julia Glum is Money's managing editor for news and email, keeping her finger on the pulse of financial trends that affect Americans' wallets. She also writes Dollar Scholar, a weekly newsletter that teaches young adults how to navigate the messy world of money. A 2014 graduate of the University of Florida's journalism school, she previously covered breaking news, politics and education at Newsweek and International Business Times. Julia joined Money in 2018; during her time as a reporter, she wrote frequently about Amazon, passive income, stimulus checks and creative ways people make money online (think: Vine compilations, Cash App Friday and Facebook gift groups). As an editor, she oversees Money’s tax coverage, which includes extensive reporting on tax credits, year-to-year policy changes, tax refunds and the IRS’s ongoing efforts to modernize. For several years, Julia has assisted with Money’s annual Best Colleges rating and Best Places to Live rankings. Recently, she also led Money’s 50th anniversary celebrations, producing the Money Classic newsletter and rolling out Changemakers, a project profiling 50 innovators working to revolutionize personal finance. Julia has interviewed National Taxpayer Advocate Erin Collins, actor Danny Devito, Nobel Prize-winning economist Robert Shiller, rapper Killer Mike, real estate guru Ryan Serhant and many others. Her work has been cited or otherwise shared by the New York Times, Washington Post, Vox, theSkimm, Mashable, CNBC and POLITICO. She’s appeared on Good Morning America, CBS News, PIX11, WGN, the Mountain West News Bureau and more. Julia is based in New York City. You can find her at juliaglum.com.
Kaitlin Mulhere is an editor at Money.com, where she oversees the website’s higher education coverage, including stories on student debt, college costs and financial aid, and the value of a college degree. She also runs Money’s annual Best Colleges ranking. In a previous role at Money, Mulhere ran the magazine’s franchise rankings, including Best Places to Live, Best Banks and Best Places to Travel. In her time at Money, she’s written about everything from the incredible costs tied to training as an Olympic figure skater to tips for women to afford freezing their eggs to fantasy football-inspired investing. Over the years, she’s participated on several panels on college topics hosted by the Education Writers Association, National Association of State Treasurers and National Press Club; and she’s talked about Money’s work in media outlets including Good Morning America, The Chronicle of Higher Education, Newsday, Great Day Washington and more. Before joining Money in 2015, Mulhere wrote about college news for Inside Higher Ed and covered local education at The Keene (N.H.) Sentinel. She’s a graduate of the University of Florida, with bachelor’s degrees in journalism and political science.
Leslie Cook is Money's lead real estate editor, covering news stories about mortgages and how rate movements affect the housing market and writing and editing stories that inform our readers about real estate trends and how they affect homebuyers and sellers. Leslie writes a weekly newsletter, Money Moves, that covers a wide range of real estate topics in addition to her weekly articles. Her work has been featured on Apple News, MSN and ConsumersAdvocate.org. Leslie has been covering the mortgage and real estate industry at Money since 2019 and has interviewed industry leaders, such as Lawrence Yun, chief economist at the National Association of Realtors, and Glenn Kelman, CEO of brokerage Redfin. She has been a guest on the This Morning with Gordon Deal radio show, interviewed by The Mortgage Note, and served as moderator for ServiceLink’s State of Homebuying webinar. While at Money, Leslie has contributed to several of Money’s rating and ranking features, including Best Places to Live, Best Places to Travel and Changemakers. She has also played a major role in researching and selecting Money’s Best Banks rankings for the past four years. Before joining Money as a staff writer, Leslie was a reporter for Caribbean Business Newspaper in San Juan, Puerto Rico, covering human resources, telecommunications and computers. She graduated cum laude from Bryn Mawr College in Pennsylvania with a bachelor’s degree in history. The research and interviewing skills learned there have contributed to Leslie’s ability to provide accurate information on her area of expertise and elicit informative responses from her interviewees.
Liliana Hall is an Austin-based reporter for Money, where she covers a range of topics, including financial news, policy, banking, investing, passive income, financial planning and student loan debt. Passionate about accessibility and financial literacy, she’s dedicated to helping readers navigate the complexities of money management and feel empowered to make informed decisions about their financial futures. Previously, Liliana covered all angles of personal finance as a writer and editor at CreditCards.com, Bankrate and CNET. Before she ever wrote about money, she worked in a handful of newsrooms across Austin, Texas, covering everything from the Texas Legislature to SXSW and the 2019 Men’s NCAA Swimming and Diving Championships. Her work has been featured in The Daily Texan, Austin Chronicle and KUT. A Texas native, Liliana graduated from the University of Texas at Austin with a bachelor’s degree in Journalism. When she’s offline, you can probably find her paddle boarding on Lady Bird Lake, riding her moped around town or reading for her book club.
Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.