One thing we know for sure: Interest rates will come down.
The question is when.
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The Federal Reserve’s 12-member monetary policymaking panel is known as the Federal Open Market Committee.
It meets July 29-30 to vote whether to cut interest rates for the first time this year.
Many economists and market analysts expect the FOMC to hold interest rates steady.
But expectations are growing that the next rate cut will come sooner than later.
Pressures mount for an interest rate cut
The implications of an interest rate cut are substantial for every American consumer, business and investor. It will lower the cost of borrowing money.
Recent FOMC meetings have seen the Fed maintain the Federal Funds Rate within its target range of 4.25% to 4.50%.
This “wait-and-see” approach, per Federal Reserve Chair Jerome Powell, reflects a cautious stance in a post-pandemic economy marked by persistent inflation and ongoing geopolitical uncertainties, including the impact of tariffs.
The FOMC makes all decisions regarding the appropriate position or “stance” of monetary policy to help move the economy toward these congressionally mandated goals of maximum employment and price stability.
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It uses interest rates as a tool to manage that dual mandate.
The Federal Funds Rate is the price the Fed charges U.S. banks to borrow money overnight. This in turn sets the pace for short-term costs of borrowing money like credit cards and auto and student loans.
The 10-year Treasury Bond yield is the benchmark for longer-term interest rates like the 30-year fixed mortgage, currently hovering around 6.8%.
President Trump, who made a rare visit to the independent central bank on July 24, has been pushing for a 3% rate cut for weeks.
He and his White House team say the current interest rates are holding back the American economy from robust growth, especially in the housing market.
Three things to watch as the FOMC meets
The CME Group’s widely respected FedWatch tool says there is a 3.1% chance the FOMC will cut the Federal Funds Rate this week.
Robert Conzo, CFP, is the CEO and managing director of The Wealth Alliance, a registered investment advisory firm.
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He offers the following “three things to know” for consumers and businesses ahead of the FOMC meeting:
- The consensus view is that the Fed will hold interest rates steady in its July meeting; however, there seems to be a push for a signal cut of .25% among economists, and even some Fed board members. We will be watching whether the July hold is unanimous, or if one or two members dissent.
- This week is important for the Fed’s direction moving forward, which may be influenced by a multitude of data coming out this week, including second-quarter earnings, core personal consumption expenditures for June (the Fed’s preferred measure of inflation), and the U.S. jobs report for the month of July. These key metrics can help determine future interest rate moves.
- Continued tariff negotiations and benign inflation concerns bode well for future rate cuts. Trump recently announced a framework for the EU’s tariff policy; this, coupled with moderating CPI and PCE, are becoming a battle cry for those who want a signal cut of .25%.
Impact of interest rate cut on consumers would vary
Should the Fed surprise markets with an interest rate cut this week, the impact on consumers would be significant and generally positive, primarily by lowering borrowing costs.
Related: Former Fed Chair sends stern message on economy, Fed
Here’s a breakdown of key areas:
- Mortgage Rates: While fixed-rate mortgages don't directly track the Federal Funds Rate, a Fed cut often influences the broader interest rate environment, including long-term Treasury yields that impact mortgage rates. Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are more directly linked and would likely see their interest payments decrease, offering financial relief to homeowners. This could also provide a much-needed boost to the housing market, making homes more affordable.
- Credit Card Debt: For consumers carrying variable-rate credit card balances, a Fed rate cut would typically lead to lower interest charges. This can translate into an opportunity to pay down debt more quickly.
- Auto Loans: Financing new and used car purchases would also become cheaper, potentially stimulating demand in the automotive sector.
- Savings Accounts and CDs: Sorry, savers, you’re likely to see less favorable returns on savings accounts, money market accounts, and certificates of deposit (CDs). They tend to fall when the Fed cuts rates.
- Overall Economic Activity: Lower borrowing costs encourage businesses to invest and expand, potentially leading to job creation and wage growth. For consumers, increased disposable income from lower debt payments might translate into higher spending on goods and services, a key driver of economic growth.
Related: Tariff uncertainty resets inflation, July interest rate cut bets
