Current U.S. Interest Rate Outlook
Recent minutes from the Federal Reserve’s May meeting reveal that a reduction in interest rates is not on the horizon anytime soon. Policymakers cited mixed economic indicators and the evolving tariff landscape as factors for their decision to wait for clearer signals about fiscal and trade policies before contemplating any rate cuts.
Fed Chair Jerome Powell previously indicated that the federal funds rate will likely remain elevated as the economy adapts and policies shift. This critical rate influences what banks charge each other for overnight loans and has a cascading effect on various borrowing and savings rates that Americans encounter daily.
When Will Interest Rates Decrease Again?
Since December 2024, the federal funds rate has remained within a target band of 4.25% to 4.5%. According to futures market estimates, the chances of a rate cut in the upcoming months are minimal: the likelihood of a cut next month is virtually nonexistent, with a less than 25% probability of a reduction in July, as per the CME Group’s FedWatch tool. Most experts anticipate that the Federal Open Market Committee is unlikely to lower its benchmark rate until at least the September meeting.
With potential rate cuts delayed, consumers grappling with high prices and elevated borrowing costs may not see relief in the immediate future. "You don’t need to wait for the Fed to come to the rescue," advises Matt Schulz, chief credit analyst at LendingTree. "You can have a significantly greater impact on your interest rates by taking proactive steps."
1. Reduce Credit Card Debt
Given the likelihood of a delayed rate cut, the average annual percentage rate (APR) for credit cards hovers slightly above 20%, nearing last year’s all-time high. In 2024, banks have increased credit card interest rates, and many issuers are expected to maintain these elevated rates.
"When interest rates are high, carrying credit card debt can be a costly mistake," warns Howard Dvorkin, CPA and chairman of Debt.com. Instead of waiting for a rate cut that may take months, borrowers could consider switching to a zero-interest balance transfer credit card or consolidating high-interest debts with a lower-rate personal loan.
"Dramatically lowering your interest rates with a balance transfer card or a low-interest loan can significantly reduce both the amount of interest paid and the time needed to pay off the debt," Schulz explains. Focusing on your highest-interest credit cards first can yield substantial savings over time.
2. Secure a High-Yield Savings Rate
As the Federal Reserve eventually lowers its rates, the returns on online savings accounts, money market accounts, and certificates of deposit are expected to decline as well. Therefore, now is an ideal time to lock in better returns, particularly with a high-yield savings account.
"The best current rates hover around 4.5%," notes Ted Rossman, a senior industry analyst at Bankrate.com. "While this is down about a percentage point from last year, it’s still significantly better than most of what we’ve experienced over the last 15 years." For those looking for safe places to park money, these rates currently outpace inflation.
For example, a typical saver with approximately $10,000 in a checking or savings account could earn an extra $450 annually by moving that money into a high-yield savings account offering a rate of 4.5% or higher. In contrast, national savings account rates at major banks average around 0.42%.
"Continuing to use a traditional savings account from a large bank can lead to missed financial opportunities," Schulz adds.
3. Enhance Your Credit Score
A higher credit score can enable individuals to qualify for lower interest rates. Generally, a superior credit score translates to better loan access and more favorable rates, while lower scores can lead to higher interest rates and limited loan options.
Recently, however, credit scores are on a downward trend. The national average has fallen from 717 to 715 over the past year, according to FICO, a leading credit scoring company. Contributing factors include increased debt loads and the resurgence of federal student loan delinquency reporting.
Improving your credit score can come from consistently paying bills on time and keeping your credit utilization ratio—-the debt compared to your total credit—-below 30%. Tommy Lee of FICO notes that merely increasing one’s score from a fair range (between 580 and 669) to a very good range (740 to 799) can save more than $39,000 over the life of various balances, primarily through reduced mortgage costs and better rates on credit cards and personal loans.
Taking these steps can provide immediate financial benefits and improvements even in the absence of Federal Reserve rate cuts.
