The (FOMC) is in the midst of its second meeting of 2025. Each time the committee meets, it could mean a change to the federal funds rate — which not only impacts financial institutions, but your bottom line, too.
In its January meeting, the Federal Reserve decided to hold rates steady after implementing three interest rate cuts in 2024. Now, Americans are waiting with anticipation to learn whether another rate reduction is on the agenda. Here’s what the experts think.
The is the interest rate at which depository institutions charge each other for ultra-short-term loans, usually overnight. It’s expressed as a range, and financial institutions negotiate a specific rate within that range.
The federal funds rate plays a key role in the Federal Reserve’s management of inflation. When inflation is too high, the Fed typically raises its rate to reduce consumer spending and slow economic activity. Conversely, the Fed may lower its rate to stimulate economic activity and growth.
The federal funds rate doesn’t directly affect the rates offered by individual banks, but it does have an influence. When the Fed’s target rate increases or decreases, rates for high-yield savings accounts, certificates of deposit (CDs), money market accounts, credit cards, home loans, and other banking products generally follow suit.
That means when the Fed’s rate is high, it can be a good time to deposit money in a bank account and earn more interest. When it’s low, it’s a good time to borrow money or refinance at a lower interest rate.
Read more: How do banks set their savings account interest rates?
After inflation peaked in June 2022, the Fed implemented a series of rate hikes in an effort to tame it. Then the Fed held rates steady from August 2023 to September 2024. In September, the Fed decided to lower the federal funds rate by 50 basis points. It cut its target rate by another 25 bps in November, and again in December.
In its last meeting, the Fed held rates steady, noting that inflation still remains somewhat elevated. In a statement, the committee said: “In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Here’s a closer look at how rates have changed over time alongside the federal funds rate:
Read more: A look at the federal funds rate over the past 50 years
The Fed’s job is to carefully monitor the economy and maintain stability. During each meeting, it may adjust its target rate and overall monetary policy based on what the economy needs to continue running smoothly. However, it doesn’t necessarily announce its plans ahead of time.
Economic experts monitor the economy’s health closely and formulate their own ideas about the Fed’s next move based on the data they have available.
“The statement and press conference will be highly scrutinized as market participants look for any evidence of hawkish or dovish sentiment,” said Luke Tilley, chief economist at Wilmington Trust. “Wilmington Trust thinks the Fed is looking to maintain their current stance due to the uncertainty around the impact of tariffs and other policies. Any forecasted effects are only penciled in at present.”
Tilley noted that while policy uncertainty may raise caution within the Fed, rate decisions are typically based on hard data. “The firm expects the Fed to hold rates steady, and for Chair Powell to emphasize uncertainty,” he said.
Regardless of whether the federal funds rate changes, it’s a good time to evaluate your banking products and potentially make some savvy money moves that could pay off later.
Right now, the national average savings interest rate is well below 1%. But many banks and credit unions offer high-yield savings accounts with APYs as high as 4% or more — at least, for now. If your interest rate isn’t competitive, you could be leaving money on the table.
Take stock of your current deposit accounts, shop around, and see if you’re getting the best rates possible. If you’re not, it could be time to switch banks or open up a new type of account.
See our picks for the 10 best high-yield savings accounts>>
One of the major perks of a CD is that it offers a fixed interest rate for the entire term. This allows you to lock in a high APY ahead of any potential rate cuts.
Keep in mind that if you make a withdrawal before your CD reaches maturity, you’ll be subject to an early withdrawal penalty. So be sure to carefully consider your savings goals before tying up your money in a CD. If you’re saving for a longer-term goal (six months to two years), opening a CD and securing a higher rate could help you reach it even faster.
See our list of the best CD rates on the market>>
If you’re preparing for a big-ticket purchase (like a car or house), applying for a new loan now could potentially lock you into a higher interest rate.
It’s impossible to predict with certainty how the Fed will change rates — if at all. However, if Fed officials do decide to cut rates in the near future, lenders will likely reduce mortgage rates as well. So it could pay to hold off.
