Fed may make its first rate cut of 2025: How to benefit

The Federal Reserve is widely expected to lower its benchmark rate when it meets this week, despite the latest hotter-than-expected inflation data.

The market is now pricing in a 96% chance of a 25 basis-point rate cut this month, according to the CME Fedwatch tool.

“The betting is currently that the Fed will embark on rate cutting, concerned about burgeoning downside risks in the economy, and the job market, in particular,” Mark Hamrick, Bankrate’s senior economic analyst, said in an email.

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For Americans struggling to keep up with sky-high interest charges, a likely September rate cut could bring some welcome relief.

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates they see every day.

From credit cards to car payments and the interest on your savings account, here’s a breakdown of what to expect when the Fed starts trimming its benchmark — and what you can do now to be in a better position to benefit.

With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — most notably credit cards — are likely to follow. But even then, APRs will only ease off extremely high levels.

“Borrowers should get some relief in the coming months, although it’s worth pointing out that interest rates are still elevated,” said Ted Rossman, Bankrate’s senior industry analyst. “Especially credit cards, which carry an average rate of 20.13%.”

That means that if the central bank cuts rates by a quarter point, it won’t have a significant impact on your credit card rate. “Existing borrowers could see their rates go down by half a point or so,” Rossman said.

Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a personal loan, experts often say.

“For people who have high-interest debt — credit cards or double-digit interest on car loans — that is the priority, you want to target that as much as possible,” said Stephen Kates, a certified financial planner and financial analyst at Bankrate.

Although auto loan rates are fixed for the life of the loan, ballooning payments have become another pain point for consumers. Experts say many car shoppers could benefit from paying down revolving debt and improving their credit scores, which could pave the way to even better loan terms in the future.