How To Prepare for Interest Rate Shifts

Investment Ideas

The U.S. Federal Reserve has held interest rates steady since December 2024. Most market observers expect there could be some shifts coming in 2025, most likely starting in September. But how quickly rates fall, how low they will go, and whether they accompany a soft landing or a recession remain to be seen. 

Now, while past performance is never a guarantee of future results, historically speaking, a few investments tend to perform well in the type of falling-rate environments that could be on the horizon. 

U.S. stocks often rally following an initial rate cut, regardless of broader economic conditions. Small-cap stocks may potentially see even greater gains, as these companies often carry more debt, which they can then refinance at lower rates. Additionally, interest-rate sensitive sectors — think real estate and financials — might be well-positioned. 

Bond markets might also see gains. Bond prices and bond yields have an inverse relationship, so when rates drop, yields usually do too, leading to higher bond prices.

Money Moves

While the Fed doesn’t control consumer interest rates directly, its changes to the federal funds rate can impact everything from savings accounts to loans. With looming rate cuts, now could be a great time to think strategically about certain financial decisions. 

First, consider opening a high-yield savings account (HYSA). Though the yields for these accounts will likely fall along with the federal funds rate, HYSAs still generally offer better returns than traditional savings accounts. 

Second, locking in a certificate of deposit (CD) now may preserve higher returns before rates drop. CDs offer fixed rates, so a future rate decrease won’t affect your return throughout the term of a CD. 

Third, it may be worth saving now for future big-ticket purchases, like cars. Lower rates typically mean lower borrowing costs. Sometimes car loan rates will drop simply out of anticipation of interest rate cuts. If you’ve been putting off a major purchase due to the cost of borrowing, a good opportunity could be on the horizon.

Mortgage Rate Expectations

The Fed started raising interest rates in March 2022, and the housing market has been under pressure ever since. Mortgage rates soared to multi-decade highs and housing inventories dropped, disappointing many would-be homebuyers. 

In 2025, affordability remains a concern as mortgage rates sit in the high 6% range. Additionally, the tariffs implemented by the Trump administration could drive up the cost of building materials. Despite these challenges, experts believe there will be modest improvement as long as inflation continues to ease and the economy stabilizes. 

For those waiting for a dramatic drop in mortgage rates, it probably isn’t going to happen anytime soon. Most agree that mortgage rates, while remaining elevated, will trend back down toward the low 6% range in 2026. 

As those gradual decreases begin, you can prepare for the shifts with the savvy money moves highlighted above.

Unsure how best to play today’s interest rate environment? Schedule a consultation with Griffin Asset Management today to strategize for future success.

Sources:

BlackRock: What’s in store for Fed policy in 2025?

Forbes: Mortgage Rates Forecast For 2025: Experts Predict How Much Rates Will Drop

CNBC: 4 money moves to make before interest rates drop

Fidelity: 5 investing ideas for rate cuts

JP Morgan: The race to rate cuts is on: What it means for you

JP Morgan: Rate-cutting playbook: Investment strategies for offense and defense

BlackRock: Small cap stocks: overshadowed opportunity amid mega-cap momentum

CBS: Trump tariffs could add more than $9,000 to cost of a new home, builders say

Forbes: Mortgage Rates Forecast For 2025: Experts Predict How Much Rates Will Drop