How the recent rate cut can affect everyday people
On October 29, 2025, the Federal Open Market Committee (FOMC) voted 10-4 to cut interest rates to a range of 3.75% to 4%, which is a cut of 0.25 percentage points.
So, interest rates were cut — but why and what could that mean for regular folks?
Why did the FOMC vote to cut rates in October?
The Fed rate, or the effective federal funds rate, is a volume-weighted median of overnight federal funds transactions reported. In other words, the rate is the average interest rate banks charge each other to borrow money.
Rates are cut in an attempt to stimulate the economy, aid the job market and slow down inflation.
The FOMC’s press release, published on October 29, regarding the vote, stated, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”
The unemployment rate is at 4.3%, according to the US Bureau of Labor Statistics. While this rate isn’t breaking records, it is a four-year high. And inflation increased by 0.3% the previous month, though it was lower than expected.
How can cutting rates stimulate the economy?
There are three main things rate cuts can do:
1. Make borrowing cheaper by lowering rates
When that rate changes, it impacts everyone else’s rates, including rates on things like mortgages, auto loans and so on. And as a result, borrowing money is cheaper for businesses and regular folks.
2. Improve the job market
This impact isn’t immediate, but the idea is that by lowering rates and making borrowing cheaper for businesses, they’ll be able to hire more people.
3. Lower savings rates
This one isn’t super great for regular folks. When the fed rate drops, interest rates on savings accounts and certificates of deposit (CDs) tend to follow suit.
Steps to consider when rates drop
When rates are cut, there are a few moves you can consider, depending on your priorities.
- Looking to buy a house? When rates are cut, mortgage rates tend to get cheaper, too. This could also apply to those who want to refinance their mortgage for a better rate.
- Want to secure high savings rates? Since savings rates tend to decrease with a rate cut, those looking to secure a high rate may want to consider a CD. Fixed-rate CDs don’t change their rate once they’re opened, guaranteeing your rate for the duration of the CD’s term.
- Consolidating debt? Personal loans are one of the most common ways people consolidate debt. With rate cuts, personal loans tend to be less expensive overall.
- Job hunting? If you’ve been considering a job switch, now might be the time to start looking, as businesses are able to afford to hire more employees.
The bottom line
When rates drop, it’s an attempt to stimulate the economy by making it cheaper for businesses to get capital and hire employees. It also drops rates on personal credit to encourage folks to borrow money.
On the downside, rate drops also negatively impact savings rates. If you want to secure a high savings rate, consider a CD to lock in a rate.
