Federal Reserve Signals Rate Cut—What This Means for Your Money

Recent conditions ’may warrant' an interest rate cut by the Federal Reserve in September, Fed Chairman Jerome Powell said.

People walk in Washington on Aug. 8, 2025. Madalina Kilroy/The Epoch Times

The Federal Reserve may cut interest rates in September.

In his final keynote address on Aug. 22 at the Economic Policy Symposium in Jackson Hole, Wyoming, Fed Chairman Jerome Powell said that current conditions, mainly a deteriorating labor market, “may warrant” a change in monetary policy.

“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said in prepared remarks.

Plans may change, he said, because “monetary policy is not on a preset course”—the central bank still has another jobs report and a batch of inflation numbers before next month’s Federal Open Market Committee meeting—but the financial markets are overwhelmingly betting on a quarter-point rate cut.

But what does a lower federal funds rate mean for businesses and consumers?

Understanding the Policy Rate

The federal funds rate (FFR) is the U.S. central bank’s chief policy rate. It is the primary interest rate at which banks lend money to each other overnight and applies to excess reserves held at the institution.

The Fed uses the FFR as a tool to influence economic activity and manage employment, growth, and inflation. A higher rate is meant to slow down the economy and cool inflation, while a lower rate is designed to stimulate conditions. As a result, the policy rate can affect business, consumer, and government borrowing costs.

In 2024, the Fed lowered the key interest rate by 1 percent, bringing the target rate to a range of 4.25 percent to 4.5 percent.

Bears and Bulls on Wall Street

Investors responded as Powell opened the door to a rate cut. The blue-chip Dow Jones Industrial Average increased by 846 points, or 1.89 percent, to a fresh all-time high. The broader S&P 500 tacked on 1.52 percent, while the tech-heavy Nasdaq Composite Index increased by almost 2 percent.

“Fed Chair Jerome Powell’s dovish commentary from his annual Jackson Hole speech appeared to be exactly what the market wanted to hear,” Adam Turnquist, chief technical strategist for LPL Financial, said in a note emailed to The Epoch Times.

Wall Street favors lower interest rates because they reduce the cost of capital for companies. Additionally, lower rates on savings accounts and Treasury securities encourage retail investors to shift their money into the stock market, seeking better returns.

But can the rally persist? Turnquist alluded to “buyer fatigue” beginning to be reflected on the New York Stock Exchange.

“Momentum indicators remain mostly bullish but have faded a bit this month,” Turnquist said. “This does not imply the rally is imminently going to end, but the negative divergence does point to buyer fatigue potentially setting in.”

Small Business Borrowing

Results from the latest RedBalloon–PublicSquare Freedom Economy Index survey, shared with The Epoch Times, show that rising costs and access to affordable capital have been the top concerns for small businesses.

When interest rates decrease, it becomes more affordable for businesses to make equipment purchases, hire workers, or expand their operations.

Still, even with elevated interest rates, the United States has witnessed a surge in business spending on capital equipment, described by Treasury Secretary Scott Bessent as a “CapEx Comeback.”

Additionally, government-backed loans offered by the Small Business Administration are often tied to the prime rate, which tracks the federal funds rate.

Savings and CDs

When the Fed tightens monetary policy, it is more expensive for financial institutions to borrow money. To maintain liquidity levels and attract customer deposits, banks will typically raise rates on savings accounts. When the Fed lowers rates, banks will reduce savings rates.

A person walks past a Wells Fargo bank in Washington on July 21, 2025. Madalina Kilroy/The Epoch Times

Ultimately, the FFR can influence savings and cash deposit accounts. Experts suggest that banks may adjust their rates ahead of time, before the Fed takes action. However, if clients currently have a cash deposit account, the rate they signed up for is locked in.

Bankrate’s survey of institutions, as of Aug. 25, suggests that the national average savings account yield is 0.59 percent.

Mortgages and Real Estate

The mortgage market is not directly tied to the Fed’s policy management. This is because mortgage rates closely track the U.S. Treasury market, particularly the benchmark 10-year Treasury, which is influenced by a wide range of factors, including monetary policy, fiscal concerns, demand for government bonds, inflation, and the broader economy.

Despite the Fed initiating its rate-cutting cycle in September 2024 and following through on a supersized half-point reduction, the 30-year fixed rate mortgage increased from 6.08 percent to a peak of 7.04 percent in mid-January, according to Freddie Mac’s Primary Mortgage Market Survey.

According to Norada Real Estate Investments, mortgage rates are expected to fall to below 6 percent by the end of 2026 and below 5 percent by the end of 2027.

If lower rates become a reality, the broader real estate market could experience stimulus, as prospective homebuyers will have greater purchasing power. However, as borrowing becomes more affordable, demand tends to surge, bringing more buyers into the market. This heightened competition often drives up home prices, potentially offsetting the initial gains in affordability.

“All else equal, lower interest rates would lower the monthly mortgage payment and lead to a higher value of the [Housing Affordability Index] and greater affordability,” Federal Reserve Bank of Richmond economists said in a 2024 paper. “That said, it’s important to keep in mind that not all changes in the fed funds rate guarantee a move in the same direction in mortgage rates.”

Nevertheless, Jeffrey Roach, chief economist at LPL Financial, said the housing sector remains sensitive to interest rate fluctuations.

“As a major component within GDP, the housing market’s health is a key indicator of the broader economy,” Roach said in a note emailed to The Epoch Times.

“Robust residential investment, including new construction and remodeling, stimulates growth, while a downturn can slow the economy significantly. The housing sector’s sensitivity to interest rates makes it vulnerable to policy missteps.”

Credit Cards

Credit cards are heavily influenced by the FFR. Credit annual percentage rates—the yearly interest rate borrowers pay if they carry a balance—are linked to the prime rate, which monitors the Fed’s policy rate.

Like the Fed’s policy rate, credit card interest rates have stagnated, although they are slightly lower than they were a year ago.

The U.S. central bank’s latest G.19 data show that today’s average credit card rate is 21.16 percent, down from 21.76 percent in the third quarter of 2024.

Total credit card debt stands at $1.21 trillion, up by nearly 6 percent from a year ago, according to the Federal Reserve Bank of New York.

However, a reduction in credit card rates might not lead to more consumption in the coming months, according to Torsten Slok, chief economist at Apollo Global Management.

“There are emerging signs of weakness in parts of discretionary spending in recent weeks,” Slok said in a note emailed to The Epoch Times.

Slok pointed to motor vehicles and parts, sporting goods, bookstores, clothing, and furniture, which he said are “sectors that are impacted by tariffs.”

Consumers account for two-thirds of economic growth.

Eyes on September

While data from the CME FedWatch Tool and the Federal Reserve Bank of Atlanta’s Market Probability Tracker suggest that Wall Street is overwhelmingly anticipating a rate cut, some market watchers warn that the Fed could stay on hold based on incoming data.

Federal Reserve Chairman Jerome Powell, after testifying before the Senate Committee on Banking, Housing, and Urban Affairs in Washington on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

Ahead of the Fed’s two-day policy meeting on Sept. 16 and Sept. 17, the monetary authorities will review employment and inflation data.

The countdown to a will-he-or-won’t-he begins on Aug. 29, when the Fed’s preferred personal consumption expenditure (PCE) price index is released. According to the Cleveland Fed Inflation Nowcasting Model, the annual PCE inflation rate for July is projected to hold steady at 2.6 percent. Core PCE inflation is expected to tick up to 2.9 percent from 2.8 percent.

“Any number that comes in hot will not bode well for those hoping for a definitive September cut,” Jay Woods, chief global strategist at Freedom Capital Markets, said in a note emailed to The Epoch Times.

“Coming into this week, we have heard several Fed officials discuss the importance of the data, and it won’t get much bigger than this when it comes to the inflation side of their dual mandate.”