Be Interest Rate Wise

The Federal Open Market Committee (FOMC) monitors the economy and adjusts the key “overnight loan” rate—the federal funds rate—that impacts interest rates across the economy. By changing this rate, the Fed aims to control inflation and promote long-term economic growth and maximum employment.

In 2008, the Fed reduced interest rates multiple times due to a weakening economy and to increase liquidity as financial markets faced uncertainties in the subprime mortgage and broader credit sectors. By December 2008, the FOMC had lowered the target federal funds rate to a range of 0% to 0.25%, where it stayed through early 2015.

From December 2015 to December 2018, the Fed gradually raised rates in several steps to a range of 2.25% to 2.50%. Starting in mid-2019, amid worries of an emerging recession, the Fed began cutting rates by 0.25% increments through October 2019, bringing them down to 1.50% to 1.75%. Then, in response to the COVID-19 pandemic, the Fed quickly lowered rates back to nearly zero (0% to 0.25%) in March 2020.

Post-pandemic supply chain disruptions and pent-up consumer demand drove inflation above 8% in 2022, leading to aggressive rate hikes. The Fed increased rates seven times in 2022, including four 0.75% hikes, eventually aiming for a range of 5.25% to 5.50% by mid-2023. It remained at that level through much of 2024 as inflation declined.

As inflation continued to decline and signs of a softening labor market appeared in late 2024 and into 2025, the Fed shifted to a more accommodative stance. It implemented several 0.25% cuts in the second half of 2025: one in September (to 4.00% to 4.25%), one in October (to 3.75% to 4.00%), and one in December (to 3.50% to 3.75%). This lowered the target range by a total of 1.75% from its 2024 peak.

As of February 2026, following the FOMC meeting on January 28-29, 2026, the Fed has kept the target federal funds rate steady at between 3.50% and 3.75%. Recent data shows the effective federal funds rate has been around 3.64%. Policymakers cited solid economic growth, decreasing unemployment, and somewhat elevated (but declining) inflation as reasons for holding steady, with two dissenters favoring another cut. Markets and Fed projections indicate limited room for further easing—such as one or two 0.25% cuts later in 2026—depending on upcoming data, though the outlook remains dependent on data with risks balanced between ongoing inflation and softer employment.

Interest rates also play a major role in our economy and in our daily lives, especially when it comes to borrowing.

Develop a Borrowing Strategy

The wise use of credit can be an important part of your personal and business financial strategies.

• Use common sense. Never borrow what you can’t repay. Prioritize your borrowing based on long-term value. Reserve some borrowing capacity for emergencies.
• Consider all the terms. Borrowing can be confusing. Review all the terms and conditions before you sign any credit application.
• Get help if you need it. If your borrowing gets out of control, take immediate steps to solve the problem. Contact lenders to work out a repayment plan. Quit using (or cut up) credit cards. Seek the help of a qualified credit counselor.

Where Interest Rates are Headed

Interest rates have risen from their recent historical lows. They may go higher, or they may not. Accurate predictions of future interest rate movements are almost impossible.

Real Estate Loans

After rising from historic lows, mortgage rates have returned to around 6%. Now is a great time to get a mortgage on a new home, refinance an existing mortgage, or use a home equity loan to consolidate your debt at a lower rate (with potential tax advantages).

Credit Cards

Not all credit cards are the same. Differences in fees, interest rates, and benefits should all be considered when choosing the one that makes the most sense for you. If you carry balances and pay interest on them, having a card with lower interest rates can save you hundreds or thousands of dollars each year. For example, with an average balance of $5,000, the difference between an 8% and 18% rate amounts to $500.