Interest rate decisions from the Federal Reserve affect everything from your mortgage to the stock market. With Jerome Powell and the FOMC set to meet again on September 16–17, 2025, investors are watching closely to see whether a long-anticipated rate cut will finally arrive.
What the Federal Reserve Does
The Federal Reserve (Fed) is the central bank of the United States. Its job is to keep inflation stable and support maximum employment. One of its most important tools is the federal funds rate — the interest rate banks charge each other for overnight loans. When the Fed raises or lowers this rate, it influences borrowing costs across the entire economy (see the official FOMC calendar).
What Are Interest Rates?
Interest rates determine how expensive it is to borrow money. A higher rate means costlier loans but usually slower inflation. A lower rate makes borrowing cheaper, which encourages spending and investment — a dynamic often explored in classic investing books that focus on long-term decision-making rather than short-term moves.
Here’s a quick look at how rates have changed in recent years:
| Year | Federal Funds Rate (End of Year) |
|---|---|
| 2020 | 0.00% – 0.25% |
| 2021 | 0.00% – 0.25% |
| 2022 | 4.25% |
| 2023 | 5.25% |
| 2024 | 4.25% – 4.50% |
The sharp increase from 2021 to 2022 — a jump of over 4 percentage points — was the most aggressive hiking cycle in decades, highlighting how interest rate cycles influence the timing of market downturns. The Fed moved this quickly to tackle inflation that had surged to 40-year highs, a moment explained in detail by Investopedia. These rapid hikes sent shockwaves through the stock and housing markets, cooling demand and eventually bringing inflation back down toward the Fed’s 2% target.
Effects on the Economy
Rate changes have ripple effects:
- Stock market: Lower rates often push stock prices higher as borrowing becomes cheaper for companies and investors seek better returns. Read more in our 10 Best Stocks to Invest in 2025 guide.
- Mortgages and loans: Rates on home loans, credit cards, and auto loans generally move in the same direction as the Fed.
- Bonds and crypto: Lower yields can make riskier assets like crypto more attractive — see our Best Platforms to Invest in Crypto article for more.
A Look Back: How Past Fed Chairs Handled Rates
Understanding Powell’s approach is easier when you compare it to past Fed chairs. Alan Greenspan was known for keeping rates low during much of the 1990s to fuel growth, while Paul Volcker became famous for aggressively hiking rates in the early 1980s to crush runaway inflation. Janet Yellen favored a cautious, gradual approach, which kept markets calm during her tenure. Powell’s strategy often lands somewhere between Greenspan’s growth-friendly stance and Volcker’s tough inflation fighting (Reuters has analyzed his speeches in depth).
Jerome Powell’s Policy Style
Jerome Powell, Chair of the Federal Reserve since 2018, is known for his “data-dependent” approach. He focuses on balancing inflation control with supporting the labor market. Powell has guided the Fed through the pandemic, record rate hikes in 2022–23, and the recent pause in 2024. Market analysts often say Powell communicates clearly but avoids locking himself into commitments, giving the Fed room to respond quickly if conditions change.
How Businesses Respond to Rate Changes
Businesses plan their investments carefully around borrowing costs, because interest rates can significantly impact profitability. When rates drop, companies are more likely to take on debt to fund expansion, invest in technology, buy equipment, or hire new workers. This can lead to economic booms, especially in industries like housing, automotive, and construction that are heavily dependent on credit.
Conversely, when rates rise, many firms postpone projects, reduce hiring, and look for ways to cut costs. Some may even pass the higher costs of borrowing on to consumers through price increases, which can affect demand. In extreme cases, prolonged high rates can lead to hiring freezes or even layoffs, as businesses shift to survival mode.
What This Means for Investors Right Now
If the Fed cuts rates in September 2025, borrowing could get cheaper, which might lift stocks, real estate, and other risk assets. For stock market investors, this may mean renewed momentum in growth sectors such as tech and consumer discretionary stocks. Bondholders could see prices rise as yields fall, giving them capital gains. Savers, on the other hand, may earn less on high-yield savings accounts and CDs as banks adjust to the lower-rate environment.
Beginners can use this moment to rebalance their portfolios — our guide to the best investments for beginners is a solid place to start building a plan for the long term.
FAQs
What happens when the Fed cuts rates?
When the Fed cuts rates, borrowing costs across the economy drop — from mortgages to business loans — which stimulates spending and investment. This often boosts economic growth and can lead to higher stock market returns in the short term. However, if cuts happen too frequently or aggressively, they can reignite inflation, erode savings, and create asset bubbles.
How often does the Fed meet?
The Federal Reserve’s FOMC meets eight scheduled times per year, roughly every six weeks, to review economic data and decide on policy changes. Emergency meetings can be called if economic conditions change dramatically, such as during a financial crisis or a sudden market shock.
Can interest rates go negative?
While the U.S. has never had negative federal funds rates, countries like Japan and some in Europe have experimented with them. Negative rates essentially charge banks to hold reserves, pushing them to lend more. This policy can stimulate growth but also carries risks, including potential distortions in savings and investment behavior.
Who decides the interest rate?
The Federal Open Market Committee (FOMC), which consists of 12 voting members — including the Board of Governors and five regional Federal Reserve Bank presidents — makes the decision. They vote on whether to raise, lower, or hold rates steady based on economic indicators like inflation, employment, and GDP growth.
How do rate decisions affect everyday people?
Interest rate changes have a direct impact on consumers. When rates are low, mortgages and car loans become more affordable, encouraging big purchases. Credit card interest rates also tend to drop slightly, easing monthly payments. When rates are high, borrowing becomes more expensive, which can cool demand for homes, cars, and other financed purchases — but it can also reward savers with higher returns on savings accounts and CDs.
