The U.S. Federal Reserve cut interest rates three times in 2025, which followed three cuts in 2024. Inflation remains elevated, which would normally prevent further reductions, but the soaring unemployment rate is forcing the Fed's hand.

Discover how banks set loan interest rates, from Federal Reserve policies to market trends and borrower creditworthiness, for better financial decisions.

The Congressional Budget Office has released new economic projections, expecting the Federal Reserve to cut short-term rates in 2026

Looking ahead to 2026, the Fed’s own median projection or “dot plot” suggested there would be only one additional 25 basis points cut. This would move the rate to around 3.25% to 3.50% by year end. Market expectations are slightly more dovish, calling for two rate cuts, which would push rates closer to 3%.

A jobs report to be released on Friday will provide a key gauge of the health of the U.S. economy as the Federal Reserve slashes interest rates in an effort to revive an ailing labor market. The fresh data comes two weeks after a blockbuster report on economic growth appeared to rebuke worries about the wider economy.

Some Federal Reserve officials who supported cutting a key interest rate earlier this month could have instead backed keeping the rate unchanged, minutes released Tuesday show, underscoring the divisions and uncertainty permeating the central bank.

Find out how lower interest rates encourage investment by reducing borrowing costs for businesses, boosting economic growth and consumer spending.

See how low your current mortgage rate offers are here.