Federal Reserve expected quarter percent decrease on Thursday is unlikely to move the dial much on skyrocketing interest rates, but experts predict further cuts in December and throughout 2025. So should you start making money moves now in anticipation of lower rates?
Fed rate cuts tend to make big headlines because they are indicative of how experts feel about the economy’s health. Although the federal funds rate may not directly affect your individual loan or savings rate, over time it changes to prices can affect many aspects of your finances.
But if you’re working to build a solid financial framework that can withstand interest rate cuts and increases, don’t let the latest news cause you to panic and change your plans.
“We see any kind of economic news as an indicator or reason to potentially change course,” says certified financial instructor Ariel Nathanson, founder of Economics for Feminists. “When we’re grounded and intentional and clear-eyed about our own financial plan and where we’re going, it (news) is kind of background noise.”
Also, the Fed tends to move incrementally – that cut in September was considered large, but it was still only half a percent — so any effects are likely to be gradual.
We asked the experts when we’ll start to see interest rates really start to come down, plus what to do with your money to prepare.
Should you plan for interest rate cuts in 2025?
Even with most economists predict more rate cuts 2025, don’t expect a dramatic change all at once. Any change will take time to implement, and the effect on you will likely be delayed.
In addition to the Fed meeting, there is a constant flow of economic news that can make you wonder if you should change your money management strategy. But don’t let any news cause you to panic or dramatically change course, Nathanson advised.
“The average individual … can’t keep up with all these things to do,” she said. “Just focus on what’s key for 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 falls, the interest you earn through a savings account or certificate of deposit tends to decrease as well. It might make you wonder if you should drain your savings in favor of investments that don’t follow interest rates.
First and foremost, it’s important to understand the purpose of each of your short-term and long-term savings.
For example, Nathanson said, “Emergency savings are not meant to be our biggest wealth builder.” That money can stay in one high yield savings accountEven if APY goes down, because its purpose is to be available when you need it, not to grow as fast as possible.
If it’s yours pension fundon the other hand, you probably want to put the money somewhere where it can grow over decades at a rate faster than the rate of inflation.
Sloane Ortel, Chief Investment Officer at Ethical capital investment cooperationsuggests working with an advisor 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 to fall. You can still lock one up high interest rate before the Fed rate is likely to drop next year.
Should you refinance your mortgage?
If you bought a home in the last few years, your mortgage rate may be between 6% and 8% APR. The latest Fed rate cut may give you hope refinancing and save money soon.
But due to a host of other factors, including conflicting economic news and election uncertainty, mortgage and refinance rates have risen recently. Experts don’t expect a refinancing boom anytime soon.
Interest rates are expected to start falling gradually next year, so it will be a while before the change is big enough to help a borrower save significantly.
Still about refinancing can help you in another waylike taking out capital or extending your repayment term, it can make sense, regardless of what interest rates are doing.
Should you consider buying property?
In a recent CNET surveyonly 4% of adults said they would consider buying a home with a mortgage rate of 6%. If mortgage rates were to drop to 4% or lower, however, half would consider it.
But if prices go down next year, does that necessarily mean it’s a good time to buy a home (or other property)?
Advisers warn against letting yourself be guided by interest rates alone. Instead, think about your finances and readiness to become a home owner, according to Ortel.
“Do you have the financial stability or the savings?” Ortel said. “Do you have the stability that will support you to own a home? Have you identified a home you want to live in for years to come?”
Nathanson also pointed that out housing prices are “still profoundly unaffordable” for many buyers.
“It can feel disconnected or incongruous to have these financial experts say it’s a good time to buy a home … when that may or may not line up with your actual financial 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. Many factors determine if it is right time for you to buy propertyso 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 loanif you have access to it, it will likely come with a much lower interest rate than financing larger purchases with a credit card, so it may be your best option.
If you finance the loan over several years, you could refinance later if interest rates drop significantly and your credit remains intact.
Although car loans are currently at all-time highs, if you need to finance a vehicle to get to work, look for the best deal. If you can wait to buy a car, it may benefit you to hang on tight to see if prices start to drop next year.
What does the Fed rate say about the labor market?
The main reason Fed interest rates make headlines is because they signal something is happening in the larger economy. A price drop usually follows curb inflationrising unemployment or both. The recent historically high rate was intended to cool the economy as inflation rose with post-pandemic demand. September’s rate cut was an indication that inflation has slowed enough, and the Fed wants to avoid further cooling the economy and affecting unemployment.
But a rate cut doesn’t necessarily mean experts expect an increase in unemployment.
Aside from the temporary effects of fall hurricanes and labor strikes, the unemployment rate has remained largely unchanged near the 4% that economists consider effective. Inflation is almost down to the Fed’s target of 2%. That combination is what economists have called a “soft landing” — a recovery from high inflation that didn’t send us into a recession.
However, employment has decreased. Further rate cuts in 2025 could give businesses the opportunity to invest in more hiring and prevent unemployment from rising further, but that remains to be seen.
When you see headlines about the Fed rate in 2025, look further to see how it relates to the hiring rate. This indicator may be the one that actually has the biggest impact on your financial situation in the coming year. If you’re worried about layoffs, now is the time to start build an emergency fund so you have some money to cover living expenses if you lose your job.
