Federal Reserve Chairman Jerome Powell during a press conference following a Federal Open Market Committee (FOMC) meeting on Wednesday, July 30, 2025 in Washington, DC, USA.
Bloomberg | Getty
The Federal Reserve cut borrowing costs for the second straight day on Wednesday.
A quarter-point decrease in the federal funds rate puts this benchmark in a range between 3.75% and 4.00%. The decision comes under intense pressure from President Donald Trump, who has repeatedly called on Fed Chairman Jerome Powell to sharply cut interest rates, saying it would make it easier for businesses and consumers to borrow and stimulate the economy.
The federal funds rate, set by the Federal Open Market Committee, is the interest rate at which banks borrow and borrow money from each other overnight. Although this is not the price consumers pay, the Fed's moves have implications for many types of consumer goods.
According to Mark Zandi, chief economist at Moody's, this latest move could provide some relief from high borrowing costs for overburdened Americans. “Their standard of living has gone down and a lot of people are uncomfortable with that,” Zandi said. “Many borrow money to supplement their income and now they are paying interest on that debt.”
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Many consumer interest rates with shorter terms are closely linked to the key interest rate. This is the interest rate that banks set and pass on to their most creditworthy customers – typically 3 percentage points higher than the federal funds rate. Longer-term interest rates are also influenced by inflation and other economic factors.
From credit cards and car loans to mortgage rates, student loans and savings accounts, here's how central bank policy could affect the interest rates shown.
Credit cards
According to a March report from the Federal Reserve Bank of New York, credit cards are a major source of unsecured loans, and 60% of credit card users are in debt from month to month.
However, according to Bankrate, credit card interest rates are currently near all-time highs, averaging over 20%.
Since most credit cards have a variable interest rate, there is a direct connection to the Fed's benchmark. If the Fed cuts interest rates, the federal funds rate will also drop, and the interest rate on your credit card debt could adjust within a billing cycle or two. But even then, the effective annual interest rates for credit cards will still be extremely high.
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When the Fed cut rates in the second half of 2024, cutting its benchmark by a full point through December, the average credit card interest rate fell just 0.23% over the same period, a CardRatings analysis found.
“A quarter-point rate cut is good, but it doesn't change much for people who have balances on their credit cards,” said Stephen Kates, financial analyst at Bankrate.
When it comes to savings on interest expense, “we're talking dollars per month,” Kates said. “It’s not nothing, but it’s not much either.”
For example, if you have $7,000 in credit card debt on a card with an interest rate of 24.19% and pay $250 a month on that balance, a quarter-point APR reduction would save about $61 over the life of the loan, according to calculations by Matt Schulz, chief credit analyst at LendingTree.
Mortgages
Although mortgages make up the lion's share of consumer debt, these longer-term loans are less affected by the Fed. Both the 15-year and 30-year mortgage rates are fixed for the life of the loan, so most homeowners won't be immediately affected by a rate cut.
Mortgages are also more closely tied to Treasury yields and the economy. Still, homebuyers could benefit if expectations of future cuts put downward pressure on mortgage rates.
“This represents a real opportunity for consumers,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.
For example, with a further 25 basis point reduction, a new home buyer securing a $350,000 mortgage at an interest rate of 6.75% could potentially see their monthly payments drop by almost $150, according to Raneri. “Over time, such savings can significantly ease household budget pressures,” she said.
Other home loans are more closely tied to the Fed's actions. Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are tied to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts immediately.
Car loans
In addition to mortgages and credit card debt, auto loans also make up a significant portion of household expenses. But the interest rate is just one factor: High prices and Trump's tariffs have worsened the affordability equation for car buyers.
Since car loan interest rates, like most mortgages, are fixed for the life of the loan, experts say potential car buyers could particularly benefit if the cost of credit falls in the future.
“While another 25 basis point rate cut may not dramatically reduce monthly payments in today's high-interest, high-price environment, it could help boost consumer confidence,” said Joseph Yoon, consumer insights analyst at Edmunds.
Salesman Walter Silva (R) helps Alexis Lechanet shop for a Ford vehicle at Metro Ford on May 6, 2025 in Miami, Florida.
Joe Raedle | Getty Images
“More importantly, this could be a signal that lenders and automakers are preparing to introduce additional financing incentives as we approach the holiday season,” he said. “For many buyers who have been waiting for the right deal, this could be the moment when more attractive offers finally emerge.”
Student loans
Federal student loan interest rates are also fixed. The interest rate on new loans only resets once a year on July 1, so most borrowers won't be immediately affected by a rate cut.
Borrowers with fixed-rate private student loans may be able to refinance into a cheaper loan when interest rates fall, according to higher education expert Mark Kantrowitz.
However, refinancing a federal loan into a private student loan would ignore some of the “superior benefits” of federal student loans, such as better deferments and forbearances, as well as the income-driven repayment plans, loan forgiveness and relief options that currently exist, he said. Trump's “Big Beautiful Bill” will phase out some of these repayment plans in 2028.
Additionally, some private loans have a variable interest rate tied to the Treasury bill or other benchmarks, meaning borrowers with variable-rate private student loans could automatically receive a lower interest rate in line with the Fed's move, Kantrowitz said.
savings interest
It's more important for savers to take matters into their own hands now that the Fed is on track to cut interest rates. While the central bank does not have a direct influence on deposit rates, returns tend to correlate with changes in the target federal funds rate.
“Yields on high-yield savings accounts and CDs will continue to decline,” LendingTree’s Schulz said. “It’s probably time to act to protect today’s high interest rates.”
Currently, online savings accounts and one-year certificates of deposit with the highest yields pay more than 4%, according to Bankrate, which is still above the rate of inflation.
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