As the September Federal Open Market Committee (FOMC) meeting approaches, investors and economists alike are watching closely for what may be the first interest rate cut in more than a year. Current market indicators suggest an 87% probability that the Federal Reserve will reduce the federal funds rate by 0.25 percentage points.[i] For many, the question isn’t if a cut will happen; rather, it’s how it will affect the U.S. economy, investors, and everyday households.

Why the Fed Is Considering a Rate Cut

Fed Chair Jerome Powell has signaled that the central bank is prepared to adjust rates in response to changing economic conditions. Inflation pressures, elevated by tariffs and supply disruptions, have shown signs of easing, but the labor market is softening.[ii] Minutes from the Fed’s last meeting revealed that officials are increasingly concerned about slowing job growth, even if inflation remains slightly above target.

In Powell’s words, the Fed will continue to be “data-dependent,” but recent signals point toward easing monetary policy to prevent an economic slowdown.[iii]

How a Rate Cut Could Affect the U.S. Economy

A reduction in the federal funds rate generally lowers borrowing costs across the board:

• Cheaper Loans for Consumers and Businesses: Mortgages, auto loans, business lines of credit, and even credit card rates typically decline, spurring spending and investment.[iv]
• Boost to Growth: Lower financing costs can encourage businesses to expand and hire, while households may feel more comfortable making large purchases.
• Weaker Dollar: Rate cuts often reduce demand for U.S. currency, which can benefit exporters but may also raise prices on imports.
• Mixed Impact on Inflation: While lower rates support growth and jobs, sticky inflation from tariffs and supply costs may complicate the Fed’s efforts to stabilize prices.[v]

In short, a September cut could give the economy a modest boost, but risks remain if inflation doesn’t continue moderating.

What It Means for Investors and Homebuyers

A rate cut by the Federal Reserve doesn’t just move markets: it ripples through nearly every aspect of personal finance. From stock performance and bond prices to savings accounts and mortgage rates, lower borrowing costs create both opportunities and challenges. Here’s a closer look at how investors and households may be affected.

• Stock Market: Historically, stocks respond positively to rate cuts.[vi] Lower borrowing costs improve corporate profits, especially in interest-sensitive sectors like homebuilding, industrials, and small-cap companies. The S&P 500 has averaged over 13% gains in past rate-cutting cycles, but those gains depend heavily on broader economic conditions.[vii]
• Bonds: Bond markets also benefit. When rates fall, existing bonds with higher interest payments become more valuable, lifting prices. Long-term Treasuries, high-quality corporate bonds, and diversified bond funds tend to see the strongest gains. However, high-yield “junk” bonds may remain volatile if the rate cut reflects slowing growth.[viii]
• Savings & Cash: Savers may feel the pinch. Bank deposit rates, CDs, and money market yields often fall after rate cuts, making it harder to earn meaningful interest on cash holdings.
• Housing & Mortgages: Perhaps the most direct effect for households: lower mortgage rates. If the Fed cuts rates, prospective homebuyers may see improved affordability. Additionally, current homeowners could consider refinancing at lower rates. A surge in housing demand often follows Fed easing, though rising home prices could offset some of the benefit.

How Your Larson Advisor Can Help Navigate Rate Changes

While headlines about interest rates grab attention, the practical impact depends on each individual’s financial goals. This is where working with a Larson Financial Advisor makes all the difference. We can help you by: 

• Rebalancing Portfolios: Adjusting allocations toward equities, bonds, or alternatives that may benefit in a lower-rate environment.
• Reviewing Risk & Goals: Ensuring investment strategies still align with long-term objectives, especially for retirees who may rely on interest income.
• Evaluating Debt Strategies: Determining whether refinancing mortgages, student loans, or other debt makes sense given lower borrowing costs.
• Maintaining Income: Exploring dividend-paying stocks or select bonds to replace lost yield from savings accounts.
• Providing Perspective: Rate cuts can trigger market swings. We help you focus on long-term resilience, rather than on short-term market noise.

Ultimately, your advisor is here to act as your guide through uncertain markets, empowering you to make informed, confident decisions.

The Bottom Line

Markets are increasingly convinced that the Fed will cut rates in a few weeks. While that may lower borrowing costs and support economic growth, the impact on investments, savings, and housing markets will vary from person to person.

In times like these, having a trusted advisor matters most. The right financial strategy can turn potential challenges, like falling savings yields, into opportunities for growth and stability.

At Larson Financial Group, we help individuals and families navigate changing economic conditions with clarity, confidence, and a long-term plan. If you’d like to discuss how a potential Fed rate cut could affect your portfolio or financial goals, we invite you to connect with your advisor today.

[i] https://growbeansprout.com/tools/fedwatch

[ii] https://www.bbc.com/news/articles/c5ylwyx43x4o

[iii] https://www.cnn.com/business/live-news/fed-powell-jackson-hole

[iv] https://www.bankrate.com/banking/federal-reserve/how-federal-reserve-impacts-your-money/

[v] https://www.cnbc.com/2025/08/20/fed-minutes-august-2025.html

[vi] https://www.investopedia.com/here-are-the-stocks-that-are-likely-to-benefit-from-lower-interest-rates-11796088

[vii] https://www.businessinsider.com/fed-rate-cuts-stock-market-performance-sp500-gains-economy-inflation-2025-8

[viii] https://www.columbiathreadneedle.com/en/insights/2025-fixed-income-outlook-a-year-of-opportunity-amid-economic-uncertainty/