What's next for US interest rates?

The Federal Reserve slashed interest rates at its September meeting, marking the first time it has done so this year. The quarter of a percentage point cut brought the central bank's overnight borrowing rate to between 4% and 4.25%, down from its prior range of 4.25% to 4.50%.

The move comes amid "concerns about a slowing labor market," alongside "an unprecedented pressure campaign" from the Trump administration that has "included attacks on [Federal Reserve Chair Jerome] Powell for not lowering rates sooner, as well as an effort to unseat a Biden-era Fed appointee over accusations of mortgage fraud," said NBC News. Notably, "September's vote was the second meeting in a row that was not unanimously supported," said The New York Times, with September's one dissenter, newly appointed governor Stephen Miran, favoring a more substantial half-point cut.

What will the Fed do next?

Coming up, the Federal Reserve is poised to make two more rate cuts in 2025, and one in 2026. The two upcoming rate cuts are anticipated in October and December, the Fed's final two meetings of the year.

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The decision to lift the pause on rate was one that Powell described as a '"risk management' move, suggesting that it is about shoring up the economy rather than responding to an economic downturn that has already taken root," said the Times. Powell "said he believes the recent pace of job creation is running below the break-even rate needed to hold the unemployment rate constant, and that with businesses doing very little hiring overall, any increase in layoffs could quickly feed into higher unemployment," said Reuters.

Meanwhile, the Fed also continues to keep tabs on inflation, which continues to run above the central bank's 2% annual target. The Fed has, however, "concluded that the higher import tariffs imposed by the Trump administration would not lead to persistent inflation," said Reuters.

When is the next interest rate decision?

The Federal Reserve next meets Oct. 28-29. Another rate cut is expected at that meeting, likely "by another quarter-percentage point," said MarketWatch.

How do interest rates affect the economy?

The Fed uses interest rates to either stimulate or rein in economic activity. Generally, the theory is that "cutting rates decreases borrowing costs, prompting businesses to take out loans to hire more people and expand production," which "in turn, stimulates economic activity and growth," said Investopedia. "Conversely, when the economy is overheating, the Fed may raise rates to cool things down and prevent inflation from spiraling out of control."

What do rate changes mean for your wallet?

Beyond broader economic implications, the Federal Reserve's decisions also hold significance for your finances.

When rates are cut, that provides "some welcome relief for consumers who are in the market for a home or auto purchase, as well as for those carrying pricey credit card debt," said CBS News, by lowering interest rates on those products. On the other hand, rate cuts "could also have a downside of shaving the relatively high returns recently enjoyed by savers," said the outlet.

Meanwhile, when the Fed decides to raise rates, it usually has the inverse effect, in that it will typically lead interest rates on credit cards, auto loans and variable rate mortgages to go up. The good news with rate hikes, though, is that "savings accounts tend to earn more interest," said LendingTree.