The Federal Reserve continues to make borrowing cheaper, cutting its benchmark interest rate again on Wednesday.

The rate was lowered by 25 basis points to a target range of 4.25% to 4.50% — a full 1% drop since September. The federal funds rate influences borrowing costs for credit cards, loans, auto financing and, more indirectly, mortgages.

The central bank has been steadily cutting rates to stimulate economic growth in response to signs of a slowing labor market and easing inflation.

The Fed kept rates elevated throughout much of 2023 and 2024 to combat inflation, which peaked at a year-over-year rate of 9.1% in June 2022. Since then, inflation has fallen to 2.7%, bringing it closer to the Fed's 2% target.

While progress on inflation has stalled in recent months, Fed Chair Jerome Powell expects it to "continue to come down toward our 2% objective, albeit on a sometimes bumpy path," he said in a November speech.

The Fed also updated its projections, with the benchmark rate expected to reach a range of 3.75% to 4% by the end of 2025.

However, "if the proposed Trump tax cuts and increased tariffs serve to exacerbate inflation, the Fed would likely change course and exercise more caution," says Robert Johnson, professor of finance at Creighton University's Heider College of Business.

How the rate cut could affect your wallet

Below is a breakdown of how the recent rate cut could impact your monthly borrowing costs, including Wednesday's 25-bps cut and the cumulative 100-bps reduction since the Fed began cutting rates in September, as estimated by Bankrate.

Credit cards

For borrowers with a $5,000 balance:

• Savings from Wednesday's 25-bp cut: $1.04 per month
• Total savings from 100-bp rate cuts since September 2024: $4.17 per month

Personal loans

For a new $10,000, three-year personal loan with a lower rate: 

• Savings from Wednesday's 25-bp cut: $1.20 per month
• Total savings from 100-bp rate cuts since September 2024: $4.80 per month

Auto financing

On a new $35,000, five-year auto loan:

• Savings from Wednesday's 25-bp cut: $4.14 per month
• Total savings from 100-bp rate cuts since September 2024: $16.63 per month

Home Equity Lines of Credit

On a $50,000 HELOC:

• Savings from Wednesday's 25-bp cut: $10.42 per month
• Total savings from 100-bp rate cuts since September 2024: $41.67 per month

Adjustable-rate mortgages

You might see a slight rate reduction, although the savings will depend on your loan size, credit score and current mortgage market conditions. Borrowers with resetting rates may still face higher rates than before.

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