The Federal Reserve is likely to lower interest rates next week, which could have implications for you.

• It is probable that the Federal Reserve will reduce rates for the third time during its upcoming meeting.
• Consumers could see some of their borrowing costs come down as well.
• The Fed's reduction of its benchmark will affect various financial products, including credit cards, car loans, and mortgages.

The Federal Reserve is predicted to reduce interest rates by 0.25% at the conclusion of its two-day meeting on December 18. This would represent the third consecutive rate reduction, resulting in a total reduction of one percentage point from the federal funds rate since September.

The central bank has gradually adjusted policy after quickly increasing interest rates when inflation reached a 40-year peak.

LendingTree's senior economic analyst, Jacob Channel, stated that this could be the final round of cuts.

President-elect Donald Trump's fiscal policy for his second term is uncertain, so the Fed may adopt a "wait-and-see approach."

Consumer borrowing costs, including auto loans and credit cards, have been affected by high interest rates.

In 2025, the economy may face some challenges. Economists have been mistaken about recessions. Consumers would likely bear the brunt of Trump's tariffs.

The rate at which banks borrow and lend to one another overnight is set by the U.S. central bank, the federal funds rate. Despite not being the rate consumers pay, the Fed's actions impact the borrowing and savings rates that consumers experience daily.

The Fed may lower its overnight borrowing rate by 25 basis points to a range of 4.25% to 4.50% from its current level of 4.50% to 4.75% in December.

Brett House, an economics professor at Columbia Business School, stated that while there will be some relief from financial pressure, it will not be uniform across all areas.

He stated that some crucial interest rates for individuals do not align with the Fed rate.

Here's a breakdown of how credit card, car loans, and mortgages work.

Credit cards

The Fed's benchmark has a direct connection to the variable rate of most credit cards. After the rate hike cycle, the average credit card rate increased from 16.34% in March 2022 to 20.25% today, according to Bankrate, which is close to an all-time high.

Despite the central bank reducing interest rates in September, the average credit card interest rate has remained unchanged. According to Greg McBride, Bankrate's chief financial analyst, card issuers tend to react more slowly to Fed cuts.

Mc Bride stated that the rate would decrease by one step, but the reduction may take up to three months to take effect.

It would be more advantageous for individuals with credit card debt to transfer their balance to a 0% interest credit card and intensely pay off the amount, he stated.

He stated that interest rates will not decrease quickly enough to significantly reduce the debt burden for consumers.

Mortgage rates

Although 15- and 30-year mortgage rates are generally linked to Treasury yields and the economy, they are not following the Federal Reserve's policy. As most individuals have fixed-rate mortgages, their rate will not change unless they refinance or sell their current home and purchase a new property.

According to the Mortgage Bankers Association, the average rate for a 30-year, fixed-rate mortgage as of the week ending Dec. 6 is 6.67%.

Although the rates have decreased slightly from the previous month, they remain higher than the 2024 low of 6.08% recorded in late September.

Mortgage rates are expected to fluctuate on a week-to-week basis, and it is uncertain where they will ultimately settle, according to Channel.

Auto loans

Fixed auto loans have become less affordable due to rising car prices and larger monthly payments.

According to Bankrate, the current average rate for a five-year new car loan is approximately 7.59%.

Sticker prices for new cars are high, with borrowers typically financing amounts around $40,000 on average. According to Bankrate's McBride, while the Fed's next move may lower rates, it will not significantly impact what you get when financing a new car.

"A monthly payment, even at low rates, can still be budget-busting."

Student loans

If you have a private student loan, the rates on those loans may decrease as the Federal Reserve cuts interest rates.

Mark Kantrowitz, a higher education expert, suggests that borrowers with existing variable-rate private student loans may have the option to refinance into a more affordable fixed-rate loan in the future.

Refinancing a federal student loan into a private loan means losing the benefits that come with federal loans, including deferments, forbearances, income-driven repayment, loan forgiveness, and discharge options.

Extending the term of a loan means you will pay more interest on the balance in the long run.

Savings rates

The target federal funds rate has a correlation with the yields of deposit rates, although the central bank does not have direct control over deposit rates.

According to Bankrate's McBride, top-yielding online savings account rates have offered the best returns in decades and still pay nearly 5%, as a result of the Fed's string of rate hikes in recent years.

"This is still a good time to be a saver and a good time for cash," he said. "The most competitive offers are still well ahead of inflation and that's likely to persist."