What the December 2025 Fed rate cut means for you

On December 10, 2025, the Federal Reserve cut rates by 25 basis points, lowering the target range for the federal funds rate to 3.50% – 3.75%. This marks the third consecutive rate cut in recent months as policymakers aim to keep the economy on stable ground heading into 2026.

This latest cut signals the Fed's commitment to supporting economic growth as it seeks to address a weaker labor market. Lower rates can also impact your personal finances by potentially lowering borrowing costs.

Let's break down what this change is and what it means for you and your money.

Why is the Fed cutting rates?

The Federal Reserve, often referred to as the Fed or the FOMC (Federal Open Market Committee), has two primary objectives: to support maximum employment and to maintain stable prices.

At the moment, the Fed is prioritizing employment to promote economic stability as job growth exhibits signs of slowing. By cutting rates, policymakers aim to encourage economic activity by lowering the cost of borrowing for businesses and consumers.

By making it less expensive to borrow money, the Fed hopes to spur businesses to invest in new projects, grow their operations and hire additional employees. Lower rates enable businesses to expand and consumers to potentially manage their debt more affordably.

How the Fed's rate cut affects savers and borrowers

A rate cut can influence everything from mortgage and credit card rates to what banks pay on savings accounts. Here's how the Fed's latest move could affect both borrowers and savers.

Bank deposit rates could decrease. If you have money in a savings or money market account, the interest rate is influenced by the federal funds rate. The December cut could mean savers earn less on their deposits, but make sure to check with your institution since this can differ on a case-by-case basis. Furthermore, now is a good time to evaluate your savings strategy and accounts to assess how rate reductions will impact your long-term goals.

Borrowing costs may ease. When the Fed cuts rates, borrowing becomes cheaper, since the Fed's baseline rate influences what lenders charge. That could help households and businesses with variable-rate debts, as well as those seeking new loans. This could be an opportunity to review your financial goals for the new year and take advantage of lower borrowing costs.

Let's take a closer look at how the Fed's move could impact the cost of borrowing money.

What the Fed's rate cut means for you

For most people, the most immediate impact of a Fed rate cut is on the cost of borrowing money. When the Fed lowers its target rate, lenders often follow suit, which can lead to savings on various types of loans and lines of credit.

Here's a look at how you might feel the effects.

Credit cards and lines of credit. Many credit cards and lines of credit, like a home equity line of credit (HELOC), have variable interest rates. These rates are often tied to the prime rate, which represents the base rate that banks charge their most creditworthy customers. Changes in the federal funds rate directly influence the prime rate so a rate cut means you could see a decrease in the prime rate, and in turn a potential reduction in variable interest rates.

Following a rate cut, you will likely see a small reduction in the interest rate. However, credit card APRs remain higher than they were a few years ago, so this is a perfect moment to get serious about paying down high-interest debt.

Mortgage rates. A decrease in the prime rate is unlikely to have an immediate impact on your mortgage rate. Even if you have an adjustable-rate mortgage (ARM), these loans are typically tied to an index such as the Secured Overnight Financing Rate (SOFR), which is separate from the prime rate. If you have a fixed-rate mortgage, your current payment won't change. However, refinancing could lower your monthly payments and save you significant money over the life of the loan. Just remember to weigh the upfront closing costs against your potential long-term savings.

Student loans. Federal student loans have fixed interest rates, so they aren't affected by Fed rate changes. However, if you have private student loans with a variable rate, you may see a modest reduction in your payments. The lower-rate environment could also be a good opportunity to explore refinancing.

Business loans. Lower interest rates make borrowing money more affordable for small business owners. Whether you're looking to invest in new equipment, hire additional employees or fund another project, the cost of capital is now lower. This is precisely the kind of economic activity the Fed hopes to encourage with a rate cut.

When will interest rates go down?

With this most recent rate cut, you could soon begin to see interest rates move lower — though the timing varies by the type of loan. Variable-rate credit cards, HELOCs and some private student loans often adjust within one to two billing cycles, meaning you may notice slightly lower rates early in the new year. Other products like auto or personal loans could be offered at lower rates as lenders update their pricing to reflect the Fed's new stance.

Liquid savings and money market rates are likely to be reduced more quickly when the Fed cuts, while CD rates are fixed for the duration of the CD term. New CDs could be offered at lower rates following the Fed cut.

Federal rate cuts FAQs

If you still have questions about federal rate cuts, get the answers here.

Will the Fed lower rates again?

The Federal Reserve holds scheduled policy meetings eight times per calendar year. For 2026, the first meeting takes place on January 27 and 28. At each meeting, policymakers review current economic conditions to decide whether to raise, lower or maintain interest rates. After the most recent cut, the Fed will wait to see how the economy responds before determining whether changes are needed at upcoming meetings. It's also worth noting that new leadership will be appointed to the Fed in the coming weeks. This is a scheduled, planned transition as Jerome Powell's term as Fed Chairman concludes in May.

Do mortgage rates go down after the Fed cuts rates?

The Fed's rate cuts do influence mortgage rates. However, if you have a fixed rate, it won't change unless you refinance with a different rate. Adjustable-rate mortgages (ARMs), however, may change at the next reset period because they are tied more directly to short-term rates.

How could rate cuts impact my investment strategy?

While you shouldn't make investment decisions based solely on interest rate changes, it's worth reexamining your plan to ensure you have the right mix of investments based on the current environment and your long-term financial goals. Working with a trusted financial advisor, a thoughtful review of your asset allocation can help you manage risk and identify opportunities as market conditions evolve.

Looking ahead

With this December cut, the Fed closes out 2025 with three consecutive quarter-point rate reductions. As we move into 2026, Citizens is here to help you make sense of how these changes affect your borrowing, banking and long-term financial plans.

For personalized financial planning and investment guidance tailored to your goals, connect with a trusted Citizens Wealth Advisor.*