Biggest winners and losers from the Fed’s interest rate cut

The Federal Reserve announced that it’s lowering interest rates following its Nov. 6-7 meeting, dropping the federal funds rate by 25 basis points, to a target range of 4.5 to 4.75 percent.

It’s the second meeting in a row that the Fed has lowered rates, following a string of 11 rate hikes beginning in March 2022. With inflation seemingly under control – it fell to 2.4 percent in September, after reaching the highest levels in decades at over 9 percent in mid-2022 – the Fed thinks it’s appropriate to ease financial conditions a bit further.

“The economy continues to do remarkably well despite high interest rates, so while the Fed will continue to lift the foot off the brake pedal, they don’t need to act with the same urgency as they did in September when they cut by one-half percentage point,” says Greg McBride, CFA, Bankrate chief financial analyst.

With the economy remaining strong and inflation moderating, the central bank has more flexibility in adjusting rates and need not respond with aggressive moves.

“Instead, a quarter-point cut will be the norm going forward, and the Fed can be more deliberate about when and how much they cut rates,” according to McBride.

At about 4.35 percent, the 10-year Treasury note has zoomed higher since the last Fed meeting in September. The benchmark rate is still much lower than the 4.99 percent it reached in October 2023.

Here are the winners and losers of the Fed’s latest rate decision.

1. Borrowers

If you’re an existing borrower and don’t need to tap the market for money – say, you previously locked in a 30-year fixed-rate mortgage in 2021 or 2022 – you’re in good shape. But even with falling rates, potential borrowers may not be able to access new credit, whether that’s credit cards (more later), student loans, personal loans, auto loans or whatever else you might need to borrow for.

The average interest rate on personal loans is 12.40 percent, as of Oct. 30, according to a Bankrate analysis, and the Fed’s rate decrease will put further downward pressure on those rates. However, borrowers with better credit may still be able to access a lower rate. In 2021, the average rate was just 9.38 percent, when the fed funds rate was near zero.

Besides these new borrowers, anyone with floating-rate debt is breathing a sigh of relief at the Fed’s decision. Still, you may have an older loan that’s resetting at this year’s higher rates. For example, if you took out an adjustable-rate mortgage years ago, that loan may be resetting at higher rates and it may be pushing up your monthly payment, just not as high as it would be if the Fed had not lowered rates.

2. Credit cards

Many variable-rate credit cards change the rate they charge customers based on the prime rate, which is closely related to the federal funds rate. As the Fed sharply raised rates, rates on cards hit multi-decade highs. Now with the Fed lowering rates, interest on variable-rate cards should drop in line with this move and any upcoming ones.

“Cardholders will see their rates stair-step lower as the Fed continues to cut interest rates, but with a lag of as long as 90 days,” says McBride. “Credit card rates are coming off record highs and the Fed is cutting rates much more slowly than they increased, so don’t sit back and wait for lower interest rates.”

“You have to continue to be aggressive about paying down and paying off credit card debt, and utilizing a zero percent balance transfer offer can turbocharge your efforts,” he says.

(Here are some of the top balance-transfer cards to consider.)

Rates on credit cards are largely a non-issue if you’re not running an ongoing balance.

3. Mortgages

While the federal funds rate doesn’t really directly impact mortgage rates, which depend largely on the 10-year Treasury yield, they’re often moving the same way for similar reasons. With the 10-year Treasury yield falling through much of 2024, mortgage rates went along for the ride. But things changed once the Fed trimmed rates last time out.

“Mortgage rates have spiked higher since the Fed’s September rate cut, unwinding more than half of the decline we’d seen in mortgage rates over the summer,” says McBride. “While mortgage rates are expected to eventually move back down, that will be predicated much more on the longer-term economic and inflation outlook and less so on what the Fed does with short-term interest rates.”

Mortgage rates remain well above where they were three or four years ago, and this – following the rapid rise in housing prices over the recent past – has created a double whammy for potential homebuyers. Home prices are more expensive and the financing is pricier, resulting in a slowdown in the housing market.

The cost of a home equity line of credit (HELOC) should decline since HELOCs stay aligned with changes in the federal funds rate. HELOCs are typically linked to the prime rate, the interest rate that banks charge their best customers. Those with outstanding balances on their HELOC will likely see rates stay close to where they are currently, but it can still be a good time to shop around for the best rate.

4. Stock and bond investors

Low rates are typically beneficial for stocks, making them look like a more attractive investment in comparison to rates on bonds and fixed-income investments such as CDs. Low rates are also generally a positive for holders of bonds, whose prices rise with lower rates.

“Stock investors have the wind at their backs with continued growth in the economy and corporate profits, with the prospect of further interest rate cuts throughout 2025,” says McBride. “Valuations are high, so this optimism is priced in to a large extent.”

Over the past couple of years, higher rates have hit bonds hard — and the longer the bond’s maturity, the more it was stung by rising rates. As rates fell, fixed-income investors benefited as bond prices moved higher. In the last six weeks, though, longer-term rates have moved higher.

“The bounce in Treasury yields for maturities of two years and longer has given investors an opportunity to lock in returns that we’d thought were in the rear-view mirror,” says McBride.

Short-term rates remain attractive if you’re looking for a safe place to stash money while waiting for things to cool off.“Be sure to match maturity to your time horizon as an unexpected rise in yields can deal you an unpleasant hit to the price if you need to sell prior to maturity,” says McBride.

5. Savings accounts and CDs

The Fed’s rate cut means that banks will lower rates on their savings, CDs and money market accounts, though many others have already been actively paring them back in anticipation of the Fed lowering rates.

“A slower pace of Fed rate cuts means yields on savings accounts, money markets, and CDs will come down at a slower pace as well,” says McBride.

Savers looking to maximize their earnings from interest should consider turning to online banks or the top credit unions, where rates are typically much better than those offered by traditional banks.

When it comes to CDs, account holders who recently locked in rates will retain those yields for the term of the CD, unless they’re willing to pay a penalty to break it.

With rates likely to only fall from here, it may be a good time to lock in longer maturities on CDs, especially those in the 2-year to 5-year timeframe while they remain relatively high.

“Savers can still lock in CDs with yields that should handily outpace inflation, and the top-yielding savings accounts should similarly remain ahead of inflation for some time to come.”

6. The U.S. federal government

With the national debt around $36 trillion, a decline in rates will at least temporarily relieve some pressure on the borrowing costs of the federal government as it rolls over debt and borrows new money. That said, the government’s total borrowing costs continue to rise as older debts at lower rates must be rolled over at today’s higher interest rates.

Of course, the government has benefited for decades from a secular decline in interest rates. While rates might rise cyclically during an economic boom, they’ve been moving steadily lower long term.

As long as inflation remained higher than interest rates, the government was slowly taking advantage of inflation, paying down prior debts with less valuable dollars. That’s an attractive prospect for the government, of course, but not for those who buy its debt. Now, with interest rates higher than inflation, the tables have turned, and the government is repaying debt with today’s more costly dollars.

While the Fed is moving short-term rates lower, the rate on 10-year Treasurys has rallied since the last Fed meeting, and longer rates jumped much higher on the day after Donald Trump won the 2024 U.S. presidential election, raising the costs of longer-term borrowing.

Bottom line

With inflation cooling significantly, the Fed has decided to lower interest rates. Smart consumers can take advantage, for example, by being more discriminating when it comes to shopping for rates on savings accounts or CDs. It can still be a good time to lock in longer-term rates on CDs or even get a good balance-transfer credit card.