Nicole Sennett Explores the Benefits of Lower Interest Rates

Like inflation and the cost of living, interest rates have been quite high in recent years. The Federal Reserve originally raised interest rates to combat rising inflation. However, during the final quarter of 2024, the Fed started cutting rates, bringing the federal funds rate down from its peak of 5.33% to a range of 4.25% to 4.5%.

So, what do these lower interest rates mean for investors, savers, and borrowers?

In this article, experienced financial advisor Nicole Sennett breaks down the current interest rate environment and outlines its impact on stocks, bonds, savings accounts, credit cards, loans, and mortgages. By understanding these dynamics, you can allocate your money strategically and capitalize on today’s market conditions.

The Current State of Interest Rates in 2025

Many factors influence interest rates, from economic growth to global supply chains. However, the Federal Reserve has the greatest impact on their direction in the United States. When the Fed adjusts its federal funds rate to address economic conditions like inflation or unemployment, market rates typically follow suit.

As we touched on earlier, the Fed recently enacted three rate cuts, including a:

• 5% reduction in September 2024
• 25% reduction in November 2024
• 25% reduction in December 2024

Initially, this shift in the Fed’s monetary policy sparked excitement among investors and borrowers alike. However, during its first meeting of 2025, the Fed decided to keep the benchmark rate at its current range, rather than reducing it further.

The Fed’s decision to pause rate cuts reflects its concerns over persistent inflation and the potential impact of President Donald Trump’s proposed tariff policies. While inflation has cooled significantly from its peak of 9.1% in the summer of 2022, it recently increased from 2.5% to 2.9%. Trump’s proposed tariffs could exacerbate the situation if they put upward pressure on prices.

According to Federal Reserve Chairman Jerome Powell, the Fed’s latest monetary policy is focused on exercising caution. “We know that reducing policy restraint too fast or too much could hinder progress on inflation,” explained Powell.

Read More: Donald Trump’s Election Victory: The Stock Market’s Response and Economic Outlook

How Will Interest Rates Change in 2025?

As the year unfolds, many economists and consumers are attempting to predict the direction of interest rates. According to a CNBC survey, 65% of economists still believe the Fed will enact two more rate cuts in 2025, though this percentage is down from 78% in December 2024. These rate cuts are expected to take place in the late spring or early summer of 2025.

The Economic Impacts of Lower Interest Rates

Now that you’re up to speed on the current interest rate landscape, you may be wondering how the recent reductions will affect your financial situation. The Federal Reserve’s rate cuts have far-reaching impacts, influencing everything from bond yields to the cost of credit card debt.

To help you navigate these changes, let’s explore how lower interest rates will affect the following factors of your financial life:

#1 The Stock Market

When interest rates drop, seasoned investors promptly turn their attention to the stock market. The reason? Lower interest rates have historically been a powerful catalyst for stock market growth, especially in sectors where borrowing and expansion drive success.

Interest rates determine the cost of borrowing money, so when they drop, borrowing is cheaper for consumers and businesses alike. Lower borrowing costs allow businesses to invest in growth initiatives, from developing new products to expanding into additional markets. If executed properly, these initiatives can lead to higher profits, and, by extension, higher stock prices.

While lower interest rates often usher in a more favorable stock market environment, this relationship isn’t always so straightforward. External factors, including political instability, inflation, and global economic uncertainty, can also impact stock market performance.

How Nicole Sennett Helps Investors Maneuver the Stock Market

Investing in stocks is a valuable way to grow your wealth over time. However, selecting the right stocks requires careful research, due diligence, and strategic insight. That’s where Nicole Sennett’s expertise can make all the difference.

Nicole helps her clients with optimal asset allocation, hand-picking equities that are poised for  greater returns. Rather than reacting to short-term market fluctuations, she aligns her clients’ portfolios with their long-term goals and so that their investments remain balanced regardless of market conditions.

You can learn more about Nicole’s award-winning approach to wealth management in her article, “Nicole Sennett’s Values and Investment Process.”

#2 The Bond Market

Bonds are generally considered a safer investment than stocks, thanks to their predictable returns. However, as interest rates decrease, the yields on newly issued bonds tend to decrease as well. As a result, these new bonds offer lower returns compared to those issued in the past.

Lower bond yields can be problematic for more conservative investors or those nearing retirement, especially if they rely on their bonds’ fixed income to support their lifestyle. However, lower interest rates present a silver lining for investors who have older, higher-yield bonds. These bonds become even more valuable in lower-rate environments, as their fixed interest payments exceed those of newly issued bonds.

Read More: Bonds vs. Bond ETFs With Nicole Sennett: Which One Should You Choose As Interest Rates Decline?

How Nicole Sennett Helps Investors Optimize Their Bond Portfolios

If you currently hold bonds in your investment portfolio, Nicole can help you maximize your returns, whether that involves retaining your higher-yield bonds or strategically selling them to capitalize on their elevated market value. She can also help you construct a well-crafted bond ladder to ensure a consistent income stream while minimizing your interest rate risk.

Read More: The Bond Curve is No Longer Inverted—Learn if Your Bond Ladder is Ready with Nicole Sennett

#3 Savings Accounts and Certificates of Deposit (CDs)

Did you know that nearly 60% of Americans can’t afford an unexpected $1,000 emergency expense in 2025? This troubling statistic highlights the importance of maintaining a healthy emergency fund. Once you’ve saved up the suggested three to six months of expenses, you should park your money where it has the greatest potential to grow.

Unfortunately, lower interest rates lead banks to offer lower returns to savers who keep their money in interest-bearing accounts, such as high-yield savings accounts and CDs. The Fed’s recent rate cuts have already started to affect these accounts’ returns. High-yield accounts that were paying upwards of 5% in early 2024 have dropped to the low 4% range in 2025.

How Nicole Sennett Helps Savers Strike The Ideal Balance Between Liquidity and Growth

In this lower-rate environment, holding money in cash doesn’t offer the same wealth-building potential that it once did. Even so, maintaining some liquid savings is still essential.

Nicole helps her clients balance their needs for liquidity and growth by recommending asset allocations tailored to their unique financial goals and risk tolerance. For example, if you’re nearing retirement, she may suggest a blend of short-term bonds and high-yield savings accounts to protect your capital while generating steady returns.

#4 Credit Cards and Short-Term Loans

Savers may not be thrilled about lower interest rates, but borrowers are another story. Reduced rates lower the cost of borrowing, making credit cards, loans, and lines of credit more affordable.

These short-term financial products are highly responsive to changes in the federal funds rate. When the Fed adjusts this rate, the interest rates on credit cards and adjustable-rate loans typically shift right away.

Whether you want to refinance a personal loan, take out a new car loan, or consolidate your credit card debt, doing so in a low-rate environment may reduce your monthly payments and allow you to pay less interest over time.

How Nicole Sennett Helps Borrowers Manage Their Debt Effectively

Debt can be good or bad, depending on how you manage it. If you need help paying down large credit card balances or determining the best time to take out a business loan, Nicole Sennett can lend you her expert guidance.

While interest rates are decreasing, they’re still higher than they were a few years ago. In turn, Nicole can help you determine whether it’s worth waiting for more favorable rates before obtaining additional fixed-rate financing.

#5 Mortgage Rates: An Ongoing Challenge

Mortgage loans are influenced by the federal funds rate, though not as directly or immediately as shorter-term financing. Instead, mortgage rates tend to track the yields on long-term bonds, particularly the 10-year Treasury bond. As bond yields fluctuate, mortgage rates tend to follow a similar pattern, contributing to the ongoing uncertainty in the housing market.

After falling to an average of just 3.15% in 2021, the average mortgage rate on a 30-year, fixed-rate mortgage shot close to 8% in 2023. As of January 2025, mortgage rates are still hovering around 7%.

Due to these stubborn rates, many aspiring homeowners are waiting for rates to come down more before purchasing a home. Likewise, homeowners who are locked into much lower mortgage rates are waiting for current rates to fall before listing their homes on the market, restricting the supply of housing inventory.

Home Equity Opportunities

Considering these suboptimal market conditions, many homeowners may still want to wait for rates to fall more before refinancing their mortgage loans. In the meantime, leveraging home equity loans or home lines of credit may be a worthwhile option, particularly for homeowners who have seen their equity grow substantially in recent years.

By leveraging low-interest HELOCs or home equity loans, equity-rich homeowners can achieve their financial goals more affordably than if they used credit cards or personal loans. For example, they can:

• Finance home improvement projects with more favorable terms.
• Consolidate high-interest credit card debt to save on interest.
• Bridge temporary cash flow gaps at a lower cost.

How Nicole Sennett Helps Existing and Aspiring Homeowners Achieve Their Goals

Over 80% of Americans say that purchasing a home is a priority for them. Nicole helps her clients reach this popular goal through personalized saving strategies and smart financial planning. Meanwhile, Nicole helps her clients who are already established homeowners determine the best times to refinance and leverage their home equity to support their financial objectives.

Navigate Interest Rate Fluctuations and Optimize Your Finances with Nicole Sennett

As you can see, interest rates have far-reaching implications for the broader economy and your day-to-day finances. If you’re wondering how to allocate your resources for  the best results, Nicole Sennett can assist.

As a Chartered Retirement Planning Counselor (CRPC®) with over 15 years of experience, Nicole can craft a comprehensive financial plan to help you achieve your goals. Thanks to her proactive communication, you will not  be caught off guard by market fluctuations. Better yet, she’ll take proactive steps so that your financial plan evolves with changing conditions.

Ready to take control of your financial future? Contact Nicole Sennett today.

Sources:

Federal Reserve Bank of St. Louis. Federal Funds Effective Rate.
https://fred.stlouisfed.org/series/FEDFUNDS

P. Morgan. December 2024 Fed meeting: Fed cuts rates by 25 basis points to bolster labor market, triggering market shifts.
https://www.jpmorgan.com/insights/outlook/economic-outlook/fed-meeting-december-2024#:~:text=At%20the%20December%202024%20Federal,basis%2Dpoint%20reduction%20in%20September.

CNBC. Fed holds rates steady, takes less confident view on inflation.
https://www.cnbc.com/2025/01/29/fed-rate-decision-january-2025.html

Bankrate. Inflation rose again last month — here are the prices rising most.
https://www.bankrate.com/banking/federal-reserve/latest-inflation-statistics/

The Federal Reserve. Transcript of Chair Powell’s Press Conference December 18, 2024.
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20241218.pdf

CNBC. Wall Street still sees two rate cuts this year, but conviction is getting weaker, CNBC survey finds.
https://www.cnbc.com/2025/01/28/wall-street-still-sees-two-rate-cuts-this-year-but-conviction-is-getting-weaker-cnbc-survey-finds.html

CBS News. Most Americans can’t afford a $1,000 emergency expense, report finds.
https://www.cbsnews.com/news/saving-money-emergency-expenses-2025/

Nerd Wallet. Emergency Fund Calculator: How Much Will Protect You?
https://www.nerdwallet.com/article/banking/emergency-fund-calculator

CBS News. What will happen to short-term CD rates in 2025? Experts weigh in.
https://www.cbsnews.com/news/what-will-happen-to-short-term-cd-rates-in-2025-experts-weigh-in/

Bankrate. Mortgage rate history: 1970s to 2024.
https://www.bankrate.com/mortgages/historical-mortgage-rates/

CBS News. Will the average home equity amount rise in 2025? Here’s what experts think.
https://www.cbsnews.com/news/will-home-equity-rise-in-2025-what-experts-think/

NerdWallet. Home Shoppers to Face High Rates, Economy With Resolve.
https://www.nerdwallet.com/article/mortgages/2023-home-buyer-report