The Federal Reserve, also known as “the Fed,” is the central bank of the U.S. and plays a significant role in shaping the nation’s monetary policy. One of its key functions is setting interest rates. Those rates determine how much Americans earn on their savings and how much they pay to borrow — including when buying a home. The Fed indirectly impacts mortgage rates by setting what’s called the federal funds rate, and that rate impacts a wide variety of financial products, including home loans. What doe ...

The Federal Open Market Committee (FOMC) recently held its last meeting of the year, which culminated in a third (and final) cut to the federal funds rate for 2025. As a result, interest rates on consumer loans and bank accounts will continue to fall. Will these cuts continue into 2026? And if so, how will that impact your bottom line? Here’s what the experts have to say, and what you should do to prepare in the meantime. Read more: How a Fed rate cut affects your bank accounts, loans, credit cards, and ...

Core Insights - The federal funds rate is a crucial economic indicator that influences various financial aspects, including savings growth and borrowing costs [2][4] - The Federal Reserve adjusts this rate to maintain economic stability and control inflation, impacting interest rates on financial products [5][9] Historical Context - The federal funds rate peaked at over 19% in the early 1980s due to inflation exceeding 13%, marking the end of the "Great Inflation" period [5][6] - In response to economic instability from the dot-com bubble burst in the late 1990s and early 2000s, the Fed lowered rates significantly [7] - Following the 2001 terrorist attacks and the 2007 housing market crash, the Fed further reduced rates, reaching a range of 0%-0.25% by December 2008 [8] - The COVID-19 pandemic prompted another rate cut to the same range in March 2020, with aggressive rate hikes beginning in 2022 as inflation surged to a 40-year high, peaking at 5.25%-5.5% [9] Current and Future Projections - As of September 2025, the federal funds rate stands at a range of 4%-4.25%, following a series of cuts [10] - The Federal Reserve aims for maximum employment and a long-term inflation rate of 2%, with current economic uncertainty affecting its dual mandate [11] - The next Federal Open Market Committee meeting is scheduled for October 28-29, 2025, with projections indicating two additional rate cuts in 2025, potentially lowering the benchmark rate to 3.5%-3.75% by year-end [12]

Knowing how the Federal Reserve’s monetary policy decisions impact your interest earnings over time is key to making an informed decision about where to put your money. With another potential rate cut this week, a certificate of deposit (CD) may be the best option. CDs can be a smart way to guarantee steady returns, especially if interest rates are expected to fall in the near future. Here's why you may want to consider opening a CD before the Fed's next meeting. What is a certificate of deposit (CD)? ...

Core Viewpoint - The article discusses the decline in savings account interest rates, which have fallen from over 5% in 2024 to around 4% APY, and explores the factors influencing these rates, particularly the Federal Reserve's monetary policy decisions [1][5]. Group 1: Factors Affecting Savings Account Rates - Savings account rates are variable and can change based on banks' strategies to attract customers or manage deposit capital needs [2]. - The federal funds rate, set by the Federal Reserve, significantly influences savings account rates, as it affects the cost of lending between banks [3][4]. - The Federal Reserve aims to maintain an inflation rate of about 2%, adjusting the federal funds rate to either stimulate or cool the economy, which in turn impacts savings account rates [4][5]. Group 2: Recent Trends and Future Outlook - The national average savings account rate is currently 0.39%, a significant increase from 0.06% four years ago, largely due to previous interest rate hikes by the Fed [5][6]. - The federal funds rate increased from 0.25%-0.5% in January 2022 to 5.25%-5.5% by July 2023, but has since begun to decrease, leading to a drop in savings account rates [6][7]. - There is uncertainty regarding future rate cuts, with less than a 25% chance of a cut in January 2026, and differing opinions among Federal Open Market Committee members on the necessity of rate cuts [7][8]. Group 3: Potential Changes in Federal Reserve Leadership - The expectation of a lower target federal funds rate may be influenced by potential changes in Fed leadership, particularly if Kevin Hassett is nominated to replace Jerome Powell [9][10]. - Hassett is viewed as an advocate for lower interest rates, which could impact the Fed's approach to managing inflation and the labor market [10]. Group 4: Strategies for Maximizing Savings - With savings account rates likely to continue decreasing, exploring alternatives like Certificates of Deposit (CDs) may be beneficial, as they can offer fixed rates above 4% APY [11][12]. - A CD ladder strategy can provide a balance between earning higher rates and maintaining liquidity by staggering maturity dates [13].

Core Points - The Federal Open Market Committee (FOMC) lowered the federal funds rate for the first time in 2025 on September 17, with expectations of two more cuts by year-end [1] - The current federal funds rate is set between 4.00% and 4.25% [2][8] - The federal funds rate is the interest rate at which banks lend to each other for overnight loans, influencing overall borrowing costs in the economy [2][7] Summary by Sections Federal Funds Rate Overview - The federal funds rate is a target range set by the Federal Reserve for interbank overnight loans, with banks negotiating specific rates within this range [2] - The effective federal funds rate (EFFR) is the median rate charged for these loans, currently reflecting a real fed funds rate of 4.33% [8] Federal Reserve's Role - The Federal Reserve, through the FOMC, meets eight times a year to decide on adjustments to the federal funds rate, impacting economic conditions [4][5] - The Fed adjusts the rate to manage inflation and stimulate or slow down the economy as needed [6] Impact on Consumers and Markets - Changes in the federal funds rate affect consumer interest rates, including those for loans and credit cards, although they do not directly set mortgage rates [7][10] - The prime rate, which is typically about 3 percentage points higher than the federal funds rate, is currently at 7.50% and is expected to decrease following the recent rate cut [10][11]