The Fed Just Lowered Rates. So What?

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The Fed Just Lowered Rates. So What?

You hear people refer to the Fed, and you might wonder what the Fed has to do with you. Lots actually. The Fed’s actions actually affect every single person in the economy, some directly and some indirectly. In today’s episode, I want to answer some questions you might have about the Fed.
The first question you might have is “What is the Fed anyway? Fed is shorthand for the Federal Reserve Bank. Have you ever seen the movie Hamilton? If you remember the part where Hamilton is lobbying for a Bank of the United States, the Fed is similar. Hamilton’s framework led to the creation of the Federal Reserve in 1913. We would call the Fed a Central Bank. Just about every developed economy has a central bank of some sort. A Central Bank serves as a source of lending in difficult times, particularly to other banks. They also take actions in the bond market that impact interest rates. Rather than rates floating completely free, the Fed, in some ways, sets certain rates through their actions.
Why was the Fed started in the first place? One of the original purposes for its founding was to help stabilize the economy in the ways that I just mentioned.
Is the Fed a good thing? You’ll get mixed answers to this question. Some think that it has helped prevent financial panics over the years. Others contend that the Fed was actually one of the primary causes of the Great Depression in 1929. I think there are pros and cons to the Fed that I won’t go into in this episode. I do think that the role of the Fed could be streamlined and modernized for today’s economy.
How does the Fed affect interest rates? The Fed sets short-term interest rates through its Federal Open Market Committee. I won’t go into the mechanics of it, but the FOMC consists of 12 members, 11 of which rotate. They vote on the Federal Funds rate target. They accomplish this target through direct and indirect means of buying and selling bonds, and of paying interest to banks that have dollars on deposit with them. Last week they voted to move the rate down to roughly 3.75%.
Who leads the Fed? This is actually about to change. The Chair of the Fed is the spokesperson and leader for the Fed. President Trump has made it clear that he wants to appoint a new chairman. It is due to have a new chairman appointed in the next few months. The two leading candidates for President Trump are Kevin Hassett and Kevin Warsh.
Does the Federal Open Market committee always agree? Oftentimes, yes. But not in its most recent meeting. Two members of the committee did not want to cut rates. This sets up an interesting 2026. The Fed Fund Futures market is predicting two more rate cuts. But this is far from certain. This week, a wave of catch-up data will come in from the government reopening, and we will get some insight into what the months of October and November were really like. Expect volatility going into the end of the year and expect even more volatility in 2026.
How does this affect me?
The lower the Fed Fund rate goes, the lower CD rates go. This is the most instantaneous and noticeable effect for you listeners. Whereas you used to find CD rates over 4%, they are going to be harder to come by, and maybe even non-existent by year end. If the Fed goes lower in 2026, you will get an even lower rate on your CD’s. But it is not just CD’s that are affected, but money market bank accounts. At one point, many of these rates were also over 4%. Some are now in the 3’s while others are in the 2’s. If you have a money market account, just know that if your interest rate hasn’t gone down, it will soon. And rather than chasing the highest rate, you might want to settle in with a bank that consistently has a competitive rate. Sometimes banks will offer aggressive rates that are above everyone else in the market, and when rates come down, they move theirs to the bottom of the market.
The lower the Fed Fund rate goes, the lower the Prime Rate goes – The prime rate mainly affects business borrows. Not all business loans are tied to the prime rate, but many are. If you have a loan that is “floating” that means it tracks the prime rate. This means your borrowing costs could go lower as the Fed goes down. Lots of other lending rates take their cue from the prime rate.
The lower the Fed Fund rate goes down does not necessarily mean that mortgage rates go down. This is a very common misconception. Mortgage rates are more often tied to the 10-year government bond than the Federal Fund rate, and they don’t always move in tandem. Mortgage rates really haven’t budged since the Fed lowered the Fed Fund rate last week. That doesn’t mean it won’t, but it hasn’t yet. A side note about mortgage rates – I don’t think 2% and 3% mortgages are coming back anytime soon. Many millennials have only known mortgage rates in that range, so rates seem really high. But historically, 6% rates are very normal.
Did you know that Foundation Bank and MBC offer fixed rates other than CDs? As of today’s date, fixed rates as high as 4.9% for 3 years are available in these fixed strategies outside of the bank. These may or may not be suitable for your particular situation, so start a financial conversation with us today to see if these might be a good fit for you. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. The fixed product just recently discussed is not FDIC insured and has no bank guarantee. It’s been great visiting with you. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on December 16, 2025. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.