Prime Rate Holds Steady at 7.00% After Federal Reserve’s Third 2025 Rate Cut

The Federal Reserve has cut its benchmark interest rate again. This is its third reduction in 2025. The central bank lowered the federal funds rate by 25 basis points. The new target range is 3.50% to 3.75%.

This move directly impacts the prime rate. That key benchmark is the basis for many consumer loans. Despite the Fed’s action, the prime rate will stay at 7.00% for now.

Why the Prime Rate Didn’t Drop Further

The prime rate did not see a larger decrease for a simple mathematical reason. It is set at 3 percentage points above the top of the federal funds rate range. When the Fed’s rate was 3.75% to 4.00%, the prime was 7.25%.

The new federal funds range is 3.50% to 3.75%. Adding 3 points to the upper limit of 3.75% gives 6.75%. Banks then typically round up to the nearest 0.25%. This calculation results in a new prime rate of 7.00%. According to Reuters, this adjustment is standard practice across major financial institutions.

The change affects borrowing costs almost immediately. Credit card rates and home equity lines often move within one or two billing cycles. This provides some relief for consumers with variable-rate debts.

Mixed Signals and a Divided Committee Shape Future Outlook

The Fed’s latest decision was not unanimous. Three members of the Federal Open Market Committee dissented. Two preferred to hold rates steady, while one argued for a larger 50-basis-point cut.

This division highlights uncertainty about the economic path forward. Inflation has cooled but remains above the Fed’s 2% target. Chair Jerome Powell noted the need for careful assessment of incoming data. The central bank signaled only one more rate cut is likely in 2026.

This cautious pivot suggests the easing cycle may be nearing a pause. For markets and homeowners, it indicates a potential stabilization in borrowing costs after a year of declines. The focus now shifts to economic resilience.

The prime rate holding at 7.00% offers a clear snapshot of the Fed’s current strategy: cautious, data-dependent, and focused on a soft economic landing. Borrowers should watch for slower changes ahead.

Info at your fingertips

What exactly is the prime rate?

The prime rate is the interest rate commercial banks charge their most creditworthy business customers. It serves as the base rate for many consumer loan products, including credit cards, home equity lines, and personal loans.

Will my fixed-rate mortgage payment go down?

No, your existing fixed-rate mortgage payment will not change. This Fed action only directly impacts variable-rate loans and new borrowing. Those with adjustable-rate mortgages may see their payments decrease slightly at their next adjustment period.

How will this affect my credit card APR?

If you have a variable-rate credit card, your Annual Percentage Rate will likely decrease. The change should appear within one or two billing cycles. The exact reduction depends on your card’s specific terms and the margin it adds to the prime rate.

What about savings account and CD rates?

Rates on high-yield savings accounts and certificates of deposit may start to decline. Banks often lower the rates they offer to savers when their own borrowing costs fall. However, this process typically happens more slowly than rate hikes for borrowers.

Why was the Fed committee divided?

The dissent reflects different views on inflation and economic strength. Some officials see lingering inflation risks, urging caution. Others are more concerned about weakening economic growth, advocating for stronger action to support the economy.