What's next for US interest rates?

At the Federal Reserve's November meeting, which wrapped up just two days after Election Day, officials unanimously decided to cut interest rates once again. The cut was by a quarter point and marked the second this year. The prior cut, which was a more sizable half-point cut, occurred in September and ended a high in the benchmark interest rate that had persisted since July 2023. Now, the central bank's benchmark interest rate sits at a range of 4.50% to 4.75%.

The latest cut comes "as inflation continues to slow," and as "the U.S. economy faces a new direction and a new president," said CNN. Still, Federal Reserve Chair Jerome Powell told reporters that "the recent election of Donald Trump to a second presidential term will have 'no effect' on the Fed's policy decisions in the near term," said The Wall Street Journal.

What will the Fed do next?

If Federal Reserve officials "stick to the forecasts they submitted at September's monetary policy meeting, we could see one more quarter-point cut at next month’s meeting and another four quarter-point cuts in 2025," said CNN. That said, "their forecasts are subject to change, based on how the economy evolves" — for example, "if officials become more worried about inflation heating up, they may opt to hold off on cutting rates further."

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Investors seem a little less certain about what's next. "Pricing in the futures markets shows investors are putting a 63% chance on the Fed cutting interest rates by another 0.25 percentage point in December, to a range of 4.25% to 4.5%," said the Journal. Meanwhile, "about a 35% chance is being put on the Fed tapping the brakes and leaving rates unchanged."

Ultimately, the decision will hinge on the economic data, and per Powell, "the right way to find neutral is carefully, patiently," said The New York Times. "We know that reducing policy strength restraint too quickly could hinder progress on inflation," Powell said. At the same time, Powell noted that "rate cuts could be faster if 'the labor market were to weaken unexpectedly, or inflation were to fall more quickly,'" said the Times.

When is the next interest rate decision?

The next Federal Reserve meeting, and the last one of this year, will take place Dec. 12-13. There is a chance of another rate cut at that meeting, though it is not yet clear whether it will happen, as Powell "suggested that central bankers are watching incoming data as they weigh whether to cut rates in December," said the Times.

How do interest rates affect the economy?

The Fed uses interest rates "like a gas pedal and a brake pedal," Forbes said. Lowering rates stimulates the economy; raising rates slows the economy down. The agency doesn't actually set the funds rate — banks do that — but "the Fed assumes that banks will use it as a floor in their own lending," Forbes added.

Rate changes usually take "at least 12 months" to have "widespread economic impact," Investopedia said. But the stock market reacts immediately. For example, when Powell signaled last year that further interest rate hikes were likely, the market went into a bit of a tailspin. The major indexes each fell more than 1%. Beyond stocks selling off, "Treasury yields rose and the dollar extended again after Powell's comments," said Reuters.

What do rate cuts mean for your wallet?

Now that the Federal Reserve has finally started on what is expected to be a series of rate cuts, a new question emerges for consumers: What do they mean for your finances?

For the most part, it is good news. It is expected that these long-awaited interest rate cuts "will provide 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.

However, these effects may not be apparent immediately. For mortgage borrowers, for instance, "there may be a delay, in part because many lenders have already priced in a Fed cut in the near term," said The Washington Post.

Meanwhile, "other rates, for personal loans, credit cards, and auto loans, are typically more closely tied to actual changes in the Fed's policy rate and should drop soon after the Fed acts," said Reuters, citing Parthenon's Gregory Daco.

It is not all good news. Rate cuts "could also have a downside of shaving the relatively high returns recently enjoyed by savers," said CBS News. In fact, "some experts have predicted that the top savings accounts could see rates drop by as much as 0.75 percentage points after the Fed cuts rates."

Still, especially with continued cuts, a lower benchmark rate "provides additional relief to millions of Americans grappling with high borrowing costs," said CBS News. And as indicated in election exit polls, many are "still hurting from the sharpest inflation in 40 years" and have "expressed dissatisfaction with the nation's economic trajectory."