Federal Reserve to Cut Interest Rates: Analysts

The Federal Reserve, which last cut interest rates in December 2024, is expected to reveal its first rate cut of the year on Wednesday.

Economists and industry experts predicted a 94% chance of a quarter percentage point (0.25%) cut, following data released earlier this month that showed that hiring was slowing, and inflation was 2.9% in August, an increase from July’s 2.7% and higher than the Fed’s preferred 2% target.

The central bank’s rate-setting committee, the Federal Open Market Committee (FOMC), has kept interest rates within the 4.25% to 4.5% range for the past nine months as its members analyze economic activity. The FOMC decides on rate cuts based on two broad goals: minimizing inflation and maximizing economic activity in the labor market.

Related: The Labor Market Has Changed From the ‘Great Resignation’ to the ‘Great Stay’ Because ‘Workers Aren’t Going Anywhere’

EY-Parthenon Chief Economist Gregory Daco told Entrepreneur in a statement that, although inflation is picking back up, “economic activity and employment are simultaneously slowing,” causing the balance to tilt toward rate cuts. He predicted that there would be two more rate cuts to follow this year.

President Donald Trump has been pressuring Federal Reserve Chair Jerome Powell to cut interest rates, writing in a Truth Social post earlier this week that Powell “MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND.”

Experts say the increased political attention on the Fed has increased expectations of a rate cut.

“The recent political noise could influence market expectations,” Daco told Entrepreneur.

Here’s when the Fed meeting will take place and how a potential interest rate cut could impact your wallet.

Related: Here’s What a Federal Rate Cut Means for Small Businesses, According to Analysts

When is the Fed meeting, and what is expected?

The Fed will reveal its rate decision at 2 p.m. ET on Wednesday, with a news conference following the announcement.

The Fed meets eight times a year in regularly scheduled meetings to set U.S. monetary policy. The FOMC sets the target range for the federal funds rate, the interest rate banks use to lend to each other, which influences broader rates that affect consumers, like credit card interest rates.

The Fed is expected to cut rates by a quarter percentage point to 4% to 4.25% for the first time this year. The rate was previously at a target range of 4.25% to 4.5%.

How does the Fed affect mortgage rates?

The Federal Reserve’s decision does not directly affect mortgage rates. Mortgage rates are tied to 10-year Treasury bonds. So, a lower federal funds rate does not necessarily mean lower mortgage rates, Melissa Cohn, Regional Vice President of William Raveis Mortgage, told Entrepreneur.

“The Fed cut will not cause mortgage rates to change,” Cohn said in an emailed statement.

Instead, “how the bond market reacts to the Fed cut will determine the direction of mortgage rates,” and what Powell says during the press conference will “be key to market reactions,” she asserted.

When faced with market uncertainty, investors buy Treasury bonds, driving mortgage rates down.

However, the bond market has already recently responded to news of a possible rate cut, with mortgage rates dropping to a three-year low on Tuesday ahead of the Fed meeting. As of Wednesday, the average interest rate for a 30-year fixed-rate mortgage was 6.24%, one of its lowest levels since early October of last year.

Related: Barbara Corcoran Says This Is the Interest Rate Magic Number That Will Make the Market ‘Go Ballistic’

How does a rate cut affect credit cards?

Credit card interest rates tend to move in alignment with the federal funds rate, per Bankrate. So if the Fed lowers rates by 0.25%, credit cardholders could feel the impact with a reduction of 0.25% in their credit card interest rates.

Other market conditions, like inflation and the demand and supply of credit, affect the basis for most credit card interest rates. That’s why interest rates for credit cards as a whole have been increasing, from 15% in 2021 to more than 21% in 2025, despite rate cuts last year.

Credit card companies are charging higher interest rates than four years ago, per Bankrate.