At the beginning of 2026, the biggest question surrounding the Federal Reserve and interest rates was whether the Fed would cut its target rate at some point this year. However, it’s become increasingly clear that a rate cut won’t happen any time soon. In fact, it’s possible that the Fed may increase its benchmark rate before the year is over.
Following the Federal Open Market Committee (FOMC)’s most recent meeting in July, under the leadership of new Fed Chair Kevin Warsh, the committee announced its decision to maintain the target range for the federal funds rate at 3.50%-3.75%.
In its statement, the committee noted that “inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”
The Fed has not cut rates since late 2025, yet interest rates on consumer loans and bank accounts steadily decreased throughout 2026 — at least, until recently. Recent rate increases are a sign that the market is already pricing in a rate hike. And with a few more Fed meetings on the calendar for the remainder of 2026, consumers are wondering how potential rate changes could impact their bottom lines.
Here’s what the experts have to say, and what you should do to prepare in the meantime.
What is the federal funds rate, and why does it matter?
The federal funds rate is the interest rate at which depository institutions charge each other for ultra-short-term loans, usually overnight. It’s expressed as a range, and financial institutions negotiate a specific rate within that range.
The federal funds rate plays a key role in the Federal Reserve’s management of inflation. When inflation is too high, the Fed typically raises its rate to reduce consumer spending and slow economic activity. Conversely, the Fed may lower its rate to stimulate economic activity and growth.
The federal funds rate doesn’t directly affect the rates offered by individual banks, but it does have an influence. When the Fed’s target rate increases or decreases, rates for high-yield savings accounts, certificates of deposit (CDs), money market accounts, credit cards, home loans, and other banking products generally follow suit.
That means when the Fed’s rate is high, it can be a good time to deposit money in a bank account and earn more interest. When it’s low, it’s a good time to borrow money or refinance at a lower interest rate.
How the federal funds rate has changed over time
After inflation peaked in June 2022, the Fed implemented a series of rate hikes in an effort to tame rising costs. By July 2023, the federal funds rate reached a target range of 5.25%-5.5% — the highest it had been since 2006.
The Fed then held rates steady until September 2024, at which point it made a 50-basis-point cut. The federal funds rate was reduced by another 25 bps in November, and again in December.
Three more cuts occurred in 2025 — in September, October, and December — dropping 25 bps each time. However, the Fed has not made any rate cuts in 2026, so far. Currently, the Fed’s target range is 3.5%-3.75%.
Fed predictions for 2026
The Fed’s job is to carefully monitor the economy and maintain stability. During each meeting, it may adjust the federal funds rate and overall monetary policy based on what the economy needs to continue running smoothly. However, it doesn’t necessarily announce its plans ahead of time.
Economic experts monitor the economy’s health closely and formulate their own ideas about the Fed’s next move based on the data they have available.
For example, the Fed’s latest dot plot shows that at least one rate hike is expected in 2026. And CME’s FedWatch tool predicts a 95% chance of a rate hike following the conclusion of tomorrow’s Fed meeting.
“Interest rate markets currently expect one or two rate increases,” said Gary Pzegeo, CFA and chief investment officer at CIBC Private Wealth, a fee-based financial advisor firm headquartered in Chicago. “Energy prices cooled in June, but the escalation of hostilities in the Middle East have led to an increase in global crude oil prices and retail gasoline prices at home.”
Pzegeo added, “it is difficult to predict how geopolitical events will play out, but the current trend would suggest the Fed will follow through with a rate hike to cool demand and offset the reduction in energy supply.” He noted that if the Fed does raise rates, consumers should expect the cost of borrowing money to increase.
Money moves you can make ahead of a potential rate increase
If the Fed raises interest rates, borrowing becomes more expensive while returns on deposit accounts often improve. Although no one can predict the Fed’s next move with certainty, there are several steps you can take to protect — and even improve — your finances in anticipation of a rate increase.
- Pay down high-interest debt. Variable-rate debt, such as credit cards and lines of credit, often becomes more expensive following Fed rate hikes. Focus on paying down these balances now so your interest costs don’t increase if the Fed raises rates.
- Refinance or lock in fixed rates if you plan to borrow. If you’re considering a mortgage, auto loan, or personal loan, securing a fixed interest rate before borrowing costs rise can help you save money over the life of the loan.
- Boost your emergency fund. A larger cash cushion can help you avoid relying on high-interest credit cards if borrowing becomes more expensive during a period of higher rates.
- Shop around for better savings rates. Banks often increase yields on high-yield savings accounts, money market accounts, and CDs when the Fed increases its rate. So, it pays to shop around and ensure you’re still earning the most competitive rate on your savings.
- Build a CD ladder. If you expect rates to continue rising, a CD ladder lets you take advantage of future rate increases while still earning competitive yields today.
Although rate cuts were anticipated at the start of 2026, elevated inflation driven by sector-specific supply shocks—such as rising crude oil and retail gasoline prices linked to Middle East hostilities—has kept price pressures high. To maintain price stability and cool demand, the Fed under Chair Kevin Warsh may implement a rate hike.
The federal funds rate is the interest rate commercial banks charge each other for overnight loans. While it doesn’t set consumer rates directly, it acts as a benchmark: when the target rate rises, interest rates for variable-rate credit cards, mortgages, auto loans, high-yield savings accounts, and CDs generally follow.
Borrowing becomes more expensive. Variable-rate debt, such as credit card balances and lines of credit, will see higher Annual Percentage Rates (APRs), increasing your monthly interest payments. Fixed-rate loans (like standard mortgages or auto loans) already in place will not change, but new loans will carry higher interest rates.
Pay down high-interest, variable debt: Clear credit card balances to prevent higher interest charges.
Lock in fixed rates: Secure fixed rates now if you plan to take out a mortgage, personal, or auto loan.
Build an emergency fund: Strengthen cash reserves so you avoid taking on high-cost debt.
Shop for higher yields: Look for competitive rates on high-yield savings accounts, money market accounts, or CD ladders.
A CD ladder involves dividing your investment across multiple Certificates of Deposit with staggered maturity dates (e.g., 3, 6, 9, and 12 months). This strategy allows you to lock in today’s higher yields while giving you regular access to maturing funds that can be reinvested at potentially higher rates if the Fed hikes rates further.
Suresh holds a Master of Commerce (M.Com) degree and is a dedicated personal finance researcher and writer. Combining his advanced academic background in commerce with deep industry research, he covers complex topics like taxation, banking systems, credit analysis, and personal finance strategies. As the founder of Tax Assistant (taxassistant.org), Suresh is committed to translating complicated financial guidelines and economic data into simple, accurate, and actionable educational resources for everyday readers.
