The Federal Reserve’s expected quarter-percent rate reduction on Thursday won’t likely move the dial much on sky-high interest rates, but experts predict additional cuts in December and throughout 2025. So should you start making money moves now in anticipation of lower interest rates?
Fed rate cuts tend to make major headlines because they’re indicative of how experts feel about the health of the economy. Although the federal funds rate may not directly affect your individual borrowing or saving rate, over time, changes to rates can impact many aspects of your finances.
But if you’re working toward building a solid financial framework that can withstand rate cuts and hikes, don’t let the latest news cause you to panic and change your plans.
“We see any sort of economic news as an indicator or reason to potentially change course,” said certified financial education instructor Ariel Nathanson, founder of Finances for Feminists. “When we are grounded and intentional and clear-sighted on our own financial plan and where we’re going, that [news] is kind of background noise.”
Plus, the Fed tends to move incrementally — the cut in September was considered big, but it was still only a half percent — so any impact will likely be gradual.
We asked the experts when we’ll start seeing interest rates really start to go down, plus what to do with your money to prepare.
Should you plan for 2025 interest rate cuts?
Even with most economists predicting more rate cuts in 2025, don’t expect a dramatic shift all at once. Each change will take time to roll out, and the impact on you will likely be delayed.
In addition to the Fed meeting, there’s a constant flow of economic news that may leave you wondering if you should alter your money management strategy. But don’t let any one news story cause you to panic or dramatically change course, Nathanson advised.
“The average individual…can’t keep up with all of these to-do’s,” she said. “Just stay focused on what’s key to you.”
Here’s some of the advice you might see floating around as interest rates drop — and what the experts have to say about it.
Should you save or invest?
When the federal funds rate goes down, the rate of interest you can earn through a savings account or certificate of deposit tends to drop too. That can leave you wondering whether you should drain your savings in favor of investments that don’t track with interest rates.
First, it’s important to understand the purpose of each of your short- and long-term savings vehicles.
For example, Nathanson said, “Emergency savings aren’t meant to be our biggest wealth builder.” That money can stay in a high-yield savings account, even if the APY goes down, because its purpose is to be available when you need it, not to grow as quickly as possible.
If it’s your retirement fund, on the other hand, you’ll likely want to put the money somewhere it can grow over decades at a pace faster than the inflation rate.
Sloane Ortel, chief investment officer at Ethical Capital Investment Collaborative, suggests working with an adviser as conditions change to keep your money on track to achieve its goal.
If CDs are already part of your savings and investment plan for the near future, this could be a good time to buy in, as rates have already started falling. You can still lock in a high rate before the Fed rate likely drops next year.
Should you refinance your mortgage?
If you bought a home in the past few years, your mortgage rate might be sitting anywhere between 6% to 8% APR. The recent Fed rate cut may have you hopeful about refinancing and saving money soon.
But due to a variety of other factors, including conflicting economic news and uncertainty about the election, mortgage and refinancing rates have been surging recently. Experts don’t expect a refinancing boom anytime soon.
Rates are expected to begin to drop gradually next year, so it’ll be some time before the change is large enough to help a borrower save significantly.
Still, if refinancing could help you in another way, like cashing out home equity or extending your repayment period, it may make sense, regardless of what interest rates are doing.
Should you consider buying property?
In a recent CNET survey, only 4% of adults said they’d consider buying a home with a 6% mortgage rate. If mortgage rates were to fall to 4% or lower, though, half would consider it.
But if rates do go down next year, does it necessarily mean it’s a good time to buy a home (or second property)?
Advisers warn against being guided by interest rates alone. Instead, consider your finances and readiness to become a homeowner, according to Ortel.
“Do you have the financial stability or the savings?” Ortel said. “Do you have the stability that will support you owning a home? Have you identified a home you want to live in for the next several years?”
Nathanson also pointed out that housing prices are “still deeply unaffordable” for many buyers.
“It can feel disconnected or incongruous to have these financial experts say it’s a great time to buy a home…when that may or may not align with your actual economic reality,” she said.
Both Ortel and Nathanson emphasized the importance of making major financial decisions based on your individual circumstances and goals, not on market conditions. A lot of factors determine whether it’s the right time for you to buy property, so don’t be swayed by interest rates alone.
Should you wait to take out a loan?
If you need money now for other purposes — like buying a new car or covering a medical emergency — don’t let the stubborn Fed rate deter you. A personal loan, if you have access to it, is likely to come with a far lower interest rate than financing major purchases with credit cards, so it could be your best option.
If you finance the loan over several years, you could refinance later if rates drop significantly and your credit remains intact.
Even though car loans are currently at historic highs, if you need to finance a vehicle to get to work, shop around for the best offer. If you can wait to buy a car, it may benefit you to hang tight to see if rates start falling next year.
What does the Fed rate say about the job market?
The major reason Fed rates make splashy headlines is that it indicates something happening in the larger economy. A rate drop usually follows slowing inflation, rising unemployment or both. The recent historically high rate was meant to cool the economy as inflation spiked with post-pandemic demand. September’s rate cut was an indication that inflation has slowed enough, and the Fed wants to avoid cooling the economy further and impacting unemployment.
But a rate cut doesn’t necessarily mean experts are expecting a rise in unemployment.
Except for the temporary effects of this fall’s hurricanes and labor strikes, unemployment has remained mostly flat near the 4% rate economists consider efficient. Inflation is nearly down to the Fed’s target of 2%. That combination is what economists have been calling a “soft landing” — a recovery from high inflation that didn’t put us into a recession.
Hiring, however, has been down. Further rate cuts in 2025 could empower companies to invest in more hiring and keep unemployment from rising further, but that remains to be seen.
As you see headlines about the Fed rate throughout 2025, look further to see how it’s related to the hiring rate. This indicator could be the one that actually has the most impact on your financial situation in the next year. If you’re concerned about layoffs, now’s the time to start building an emergency fund so you have some money to cover living expenses if you lose your job.
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