The Fed is cutting interest rates by 25 basis points – here’s what’s cheaper

The Federal Reserve continues to make borrowing cheaper and cut its key interest rate again on Wednesday.

The interest rate was cut by 25 basis points to a target range of 4.25% to 4.50% – a full 1% decline since September. The federal funds rate influences the cost of borrowing for credit cards, loans, auto financing and, more indirectly, mortgages.

In response to signs of a slowing labor market and easing inflation, the central bank has steadily cut interest rates to stimulate economic growth.

To combat inflation, the Fed kept interest rates elevated through much of 2023 and 2024. This peaked in June 2022 at an annual rate of 9.1%. Since then, inflation has fallen to 2.7%, approaching the Fed’s 2%. Goal.

Although progress on inflation has stalled in recent months, Fed Chairman Jerome Powell expects inflation to “continue to decline toward our 2 percent target, albeit over a sometimes bumpy path,” said he in a speech in November.

The Fed also updated its forecasts, with the key interest rate expected to reach a range of 3.75% to 4% by the end of 2025.

However, “If Trump’s proposed tax cuts and increased tariffs serve to exacerbate inflation, the Fed would likely change course and be more cautious,” says Robert Johnson, a professor of finance at Creighton University’s Heider College of Business.

Below is a breakdown of how the latest rate cut could affect your monthly borrowing costs, including Wednesday’s 25 basis point cut and the cumulative 100 basis point cut since the Fed began cutting rates in September, as estimated by Bankrate.

Credit cards

For borrowers with a balance of $5,000:

• Savings from Wednesday’s 25 basis point cut: $1.04 per month
• Total savings from rate cuts of 100 basis points since September 2024: $4.17 per month

Personal loans

For a new $10,000 three-year personal loan with a lower interest rate:

• Savings from Wednesday’s 25 basis point cut: $1.20 per month
• Total savings from rate cuts of 100 basis points since September 2024: $4.80 per month

Car financing

For a new five-year, $35,000 car loan:

• Savings from Wednesday’s 25 basis point cut: $4.14 per month
• Total savings from rate cuts of 100 basis points since September 2024: $16.63 per month

Home equity lines of credit

For a $50,000 HELOC:

• Savings from Wednesday’s 25 basis point cut: $10.42 per month
• Total savings from rate cuts of 100 basis points since September 2024: $41.67 per month

Adjustable Rate Mortgages

There may be a slight reduction in interest rates, but the savings will depend on the size of your loan, your credit score and current mortgage market conditions. Borrowers with a rate adjustment may continue to face higher interest rates than before.

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