For the first time in 2025, the Federal Reserve is reducing the cost of borrowing, including for credit cards, loans and auto financing.
As expected, the central bank cut the federal funds rate by 25 basis points on Wednesday, bringing it down to a range of 4% to 4.25%. That benchmark rate influences how much interest lenders charge on certain types of credit and loans.
The Fed has kept borrowing costs elevated for more than two years to help slow inflation, since higher rates make it more expensive for households and businesses to spend and borrow. On July 30, Fed chair Jerome Powell had described the rate as “modestly restrictive.”
Despite higher borrowing costs, inflation rose to 2.9% in August from a year earlier, above the Fed’s 2% target. But the central bank is now shifting focus to a weakening labor market, as job growth has slowed in recent months. Both price stability and supporting the labor market are part of the Fed’s dual mandate.
President Donald Trump has been publicly pressuring the Fed to lower rates. On Sept. 15, he wrote on Truth Social: “‘Too Late’ MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!,” referring to Powell.
Wednesday’s cut was already expected, but Trump’s ongoing criticism has put new pressure on the central bank’s long-held independence.
How the rate cut could affect your borrowing costs
Wednesday’s quarter-point cut translates into small but noticeable savings across common types of debt. Here’s what that might look like, based on estimates provided by Bankrate.
Credit cards
Credit card interest rates are variable and directly tied to the Fed’s benchmark, meaning borrowers carrying a balance will see changes within a couple of billing cycles.
Average rates will fall by about a quarter percentage point, bringing the current average rate of 20.12% down slightly. For a balance of $5,000, it will amount to a few bucks off monthly interest payments.
Auto loans
New car loan rates don’t move in lockstep with the Fed, but they usually edge lower when borrowing costs fall. On a $35,000 loan over five years, payments would drop by about $4 a month with a quarter-point cut, based on Wednesday’s average percentage rate of 7.19%.
In February, the average 60-month loan rate was 7.91%. At that level, the same loan would have cost about $11 more per month than it does today.
Home equity lines of credit
A HELOC lets homeowners borrow against their equity — the portion of the home they own outright — through a revolving credit line, typically with a 10-year draw period followed by a repayment period of 10 to 20 years. Rates are variable and tied to the prime rate, which moves with the Fed’s benchmark, so borrowers usually see lower costs soon after a rate cut.
Based on a Sept. 1 average rate of 8.5%, a $50,000 balance would see payments drop by about $10 a month during the interest-only draw period and by about $7 once repayment begins, per Bankrate’s calculations.
Adjustable-rate mortgages
Unlike a 30-year fixed mortgage, an ARM begins with a set interest rate for an initial term — often five, seven or 10 years — before adjusting at regular intervals based on market benchmarks.
For a $250,000 five-year ARM with the current rate of 6.56%, a quarter-point Fed cut would lower payments by about $40 a month, but only once the loan resets to the new rate. New ARM offers can reflect Fed cuts within days as lenders adjust pricing.
What could happen next
More cuts may be on the way. With the job market faltering and new tariffs adding uncertainty to the economy, futures markets are pricing in as many as two additional cuts — totaling 75 basis points — by the end of the year, according to the CME FedWatch tool, which tracks investor expectations for Fed policy.
Those rate cuts would add further savings, but they’re less likely if inflation picks up again.
In a July 1 press conference, Powell said rate cuts would “depend on the data.” And in a speech on Aug. 22, he warned “upward pressure on prices from tariffs could spur a more lasting inflation dynamic.”
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