Thursday, SEPTEMBER 18, 2025 |
Good news if you need to borrow money from a bank.
The Federal Reserve cut its benchmark interest rate by a quarter point on Wednesday, September 17, 2025, lowering the federal funds rate to a range of 4.00% to 4.25%.
The cut marks the first reduction in the interest rate since December 2024 and is primarily driven by concerns over a weakening job market, with hiring slowing and unemployment rising.
Federal Reserve Chair Jerome Powell announced the rate cut during a news conference on Wednesday.
The cut is expected to lower borrowing costs for consumers and businesses, offering relief on variable-rate debt and short-term loans, though the impact on mortgage rates will be more indirect and gradual.
Borrowers will likely see lower interest rates within weeks, as these are tied directly to the prime rate, which moves with the federal funds rate.
Mortgage rates will likely be unaffected, at least, at first. Rates on home loans are influenced more directly by the 10-year treasury yield.
In general, economists expect a lag of nine to twelve months before the full effects of the rate cut are felt in areas like hiring, wages, and consumer spending. The Fed may make further cuts in October and December, depending on economic data.
Here’s some advice for consumers. Paying down high-interest variable-rate debt like credit cards and HELOCs—Home Equity Line of Credit–remains a priority, as even small rate cuts won’t eliminate high balances.
Wednesday’s quarter-percent rate cut followed months of pressure from President Trump for the central bank to lower borrowing costs.
