Fed Trims Rate: What Does It Mean For You?

The federal funds rate is now 4%-4.25%. Further 2025 cuts are likely.

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Edited by other Updated Sep 17, 2025 For the first time in nine months, the Fed cut rates, which means two things for consumers: borrowing will get cheaper, but savings returns won’t be as high. It’ll take time for either effect to take hold. The Federal Open Market Committee (FOMC) cut the federal funds rate by 25 basis points Wednesday, as expected, bringing the federal funds rate range to 4.00%-4.25%. The Fed last cut rates at its December 2024 meeting, following cuts at its two previous meetings. Throughout 2025, the federal funds rate has stood at 4.25%-4.50%. Fed Chair Jerome Powell called the rate cut a “risk-management cut,” in a press conference following the decision. When asked if a cut should have come sooner, Powell said, "We have to live life looking through the windshield rather than the rear view mirror.” For months, President Donald Trump has been pressuring the central bank to slash rates, but the Fed has firmly stated it bases its decisions on data and the broader economy. There are a few crucial elements that led to the rate cut, namely a steadily-weakening labor market. The FOMC indicated that cutting rates to cushion the labor market is a higher priority than tamping down lingering inflation, even with additional inflationary pressures looming. NerdWallet’s Senior Economist Elizabeth Renter says, “Rates are typically cut when the labor market is slowing, so this isn’t a sign of a strong economy, rather an attempt to ensure labor market cooling doesn’t worsen.” Powell noted that the recent rise in prices is starting to put pressure on inflation, but the effects are limited thus far. He expects inflation to continue building. He also said that the labor market dynamics are largely being shaped by a shrinking labor force, largely due to current immigration policies combined with a sharp drop in labor demand. Current conditions are what Powell calls a “curious balance.” “Typically when we say things are in balance, that sounds good, but in this case, the balance is because both supply and demand have come down quite sharply,” said Powell. “Now, demand is coming down a little more sharply because we now see the unemployment rate edging up.”

New FOMC member breaks ranks

There was one dissenting member of the FOMC — its newest member, Stephen Miran, who favored a cut of 50 basis points. Miran, who was appointed on Monday, is taking an unpaid leave of absence from his position as chair of the White House Council of Economic Advisors so that he can serve on the Fed. Renter says, “Though dissent at the FOMC isn’t unheard of, it is unusual, especially in recent history. But current economic conditions — and thus the proper course of action — are difficult to interpret, even without added political pressure. In other words, this FOMC at this point in time is ripe for some disagreements.”

What happens when there’s a rate cut?

A federal rate cut doesn’t automatically or immediately mean lower interest rates on financial products. Here’s what you may expect to happen: It’ll be cheaper to borrow. When the Fed lowers the federal funds rate, banks will pay less to borrow from each other. The banks respond by lowering interest rates on loans. That includes credit cards, auto loans, mortgages, personal loans and more. It’ll be cheaper to borrow. It’ll be cheaper to refinance. Lenders may trim rates for those looking to refinance an existing mortgage or other loan. It’ll be cheaper to refinance. Saving will be less rewarding. Annual percentage yields will fall on common savings products like high-yield savings accounts, CDs and interest-bearing checking accounts. Saving will be less rewarding. Markets could fluctuate. Typically, cheaper borrowing tends to boost investor confidence and encourages businesses to expand, which leads to higher corporate profits. But if the rate cuts are perceived as a response to economic decline, then the markets could be more volatile. Immediately following the rate announcement, the markets fell, although the Dow’s slide was brief. Markets could fluctuate. When it comes to consumer finances, Powell said, “Lower rates should support economic activity. I don't know that one rate cut will have a visible effect on that, but over time, a strong economy with a strong labor market is what we're aiming for.”

Will the Fed cut rates again?

It’s likely, but nothing is certain. Yes, that’s a vague answer, but it’s true. Powell called all future decisions a “meeting-by-meeting situation.” He later added that the current situation is unusual since the economy isn’t what he would consider bad. He said, “It’s not incredibly obvious what to do.” The FOMC dot plot indicates that more cuts are likely at its remaining meetings this year: Oct. 28-29 and Dec. 9-10. The futures market’s CME Fedwatch tool places strong odds of a rate cut at both meetings. (Photo by Win McNamee/Getty Images)

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Explore more on About the author Helhoski Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet. She is an on-air contributor and producer of Money News segments for NerdWallet's Smart Money podcast. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has been syndicated in news outlets nationwide including The Associated Press, The New York Times, The Washington Post, The Los Angeles Times and USA Today. She previously covered local news in the New York metro area for the Daily Voice and New York state politics for The Legislative Gazette. She holds a bachelor's degree in journalism from Purchase College, State University of New York. Published in Are We in a Recession? Consumer Sentiment: Numbers Tick Up on Easing Gas Prices How Is Trump Handling the Economy? Fed Rate Holds Steady in June 2026 How Is the Economy Doing Right Now? By Anna Helhoski Trump Administration, Stymied by Courts, Outlines New Tariffs By Rick VanderKnyff How Could the DHS Shutdown Affect You? By Anna Helhoski U.S. Adds 172,000 Jobs in May, Beating Expectations Again By Anna Helhoski