CD Rate Forecast: Are CD Rates Going Up in 2025?

The Federal Reserve's September 2025 rate cut of 0.25 percentage points, following earlier reductions in late 2024, signals a continued easing monetary policy that is driving Certificate of Deposit (CD) rates lower. While one-year CD rates stabilized at 4.00% through August 2025 after an initial drop from 4.60% in September 2024, further declines are expected, with some analysts projecting the federal funds rate to settle between 3% and 3.5%. This outlook, complicated by persistent inflation challenges and tariff-related recession risks, implies that investors should consider locking in current high-yield CD rates as the market anticipates additional Fed easing.

Analysis

The Federal Reserve initiated its first rate cut of 2025 in September, reducing the federal funds rate by 0.25 percentage points to a range of 4.00%-4.25%. This action follows earlier cuts in late 2024, marking a continued easing monetary policy. Consequently, national average and high-yield CD rates have been falling, with one-year CD rates dropping from 4.60% in September 2024 to 4.00% by January 2025, where they remained through August 2025.

Further rate declines are anticipated, with CME FedWatch indicating a potential October 2025 cut and analysts projecting the federal funds rate to settle in the 3%-3.5% range. This outlook is complicated by persistent inflation challenges and recession risks, as highlighted by the American Bankers Association’s Economic Advisory Committee, which cites tariffs as a contributing factor. The overall tone remains cautious regarding the Fed's ability to achieve its 2% inflation target amidst these economic headwinds.

While CD rates are still at multi-decade highs due to previous Fed hikes, the trend is clearly downward. Short-term CD rates, which previously offered higher yields, are now dropping faster than longer-term rates, potentially closing this yield gap. The September 2025 Fed cut is expected to lead to steeper declines across the CD market, contrasting with the more gradual dips observed from December 2024 to August 2025.

Key Decisions for Investors

• Investors should consider locking in current high-yield CD rates, particularly for longer terms, given the expectation of further Federal Reserve rate cuts and the observed decline in short-term CD yields.
• Monitor upcoming Federal Reserve meetings and economic data, especially inflation reports and tariff developments, as these factors will influence the pace and magnitude of future rate adjustments.
• Evaluate flexible CD options like no-penalty CDs to maintain liquidity while still benefiting from current rates, or consider a CD laddering strategy to mitigate interest rate risk in a falling rate environment.