Will the Fed cut interest rates next week? This tool may reveal the answer

What has changed in expectations for federal interest rate cuts?

When you want to know where bank savings rates are headed, it all depends on what the Federal Reserve does next. This is because the Federal Reserve’s benchmark rate directly affects how much banks and credit unions pay on savings and money market accounts and certificates of deposit (CD).

Less than two weeks ago, markets were betting that the Fed would keep its benchmark interest rate steady at its final meeting of the year, pausing after quarter-point cuts in both September and October. But since then, the odds have flipped, with a strong majority of traders now expecting the central bank to cut interest rates again in 2025, at the conclusion of its meeting on December 9-10.

The volatility of the Fed’s expectations stems from several cross-currents. The government shutdown delayed the release of key economic data, leaving the Fed less visible on inflation and growth. At the same time, central bankers had to balance competing information: the labor market gave conflicting signals and inflation rose.

The latest pivot was triggered on November 21, when public comments from a key Fed policymaker — saying he was open to a rate cut in December — quickly changed sentiment and pushed back market odds in favor of a quarter-point cut at the next meeting.

How this might affect what you’ll earn for your money

Because the Fed’s benchmark interest rate directly represents what banks and credit unions pay on deposits, a December rate cut would put clear downward pressure on savings, money markets, and certificate of deposit yields. This means that the cash you hold in a savings or money market account will likely earn less if your bank reduces its APY in line with the Fed’s cut. CD prices will also decrease on new accounts. (The CDs you already own are fixed-price products, so their production will not change.)

Even with some slippage from the 2023-2024 highs, returns remain historically strong. Today’s best high-yield savings accounts offer an average 4% APY, and a few still go as high as 5%. The nation’s best CDs also remain attractive, with guaranteed returns available between 4.00% and 4.50% over periods ranging from 3 months to 5 years.

While there’s nothing you can do to protect your savings or money market account from declining returns, you can secure one of today’s higher rates with a CD before a Fed cut results in lower returns. By opening a CD now, you will likely get a better return than you will be able to earn later.

How to Track Interest Rate Cut Prospects Like a Pro

What the Fed decides is never certain until it is formally announced at the end of each meeting. Every six weeks or so, central bankers meet for two days to review the latest economic data and discuss whether the benchmark interest rate should be changed. Since no one knows what new data will emerge before each meeting, any predictions are just an educated guess.

But the financial markets make these guesses in real time, and you can see for yourself. The CME FedWatch tool shows the probabilities that traders assign to various price outcomes at upcoming Federal Reserve meetings. You don’t have to be a Wall Street insider to use it.

Click on the widget, and you’ll see tabs for every scheduled Fed meeting. For example, selecting the December 10 tab at the top will display the current market odds for different price scenarios. The chart above indicates today’s target range (for example, “375-400” at the moment, which means a federal funds rate of 3.75%-4.00%) and compares it to potential new ranges. The column labeled 350-375 represents the probability of a quarter-point downgrade, while 375-400 shows the probability of no change from today’s level.

These bars are constantly moving, sometimes rising or falling with daily headlines, and other times swinging sharply after new data or Fed comments. Checking the chart regularly is the easiest way to understand the Fed’s forecasts and anticipate how savings and certificate of deposit rates will move next.