Making Sense of Interest Rates: From Hikes to Strategic Cuts
After several years of aggressive rate hikes, the Federal Reserve has clearly shifted direction. Since late 2025, the Fed has cut its benchmark rate multiple times, signaling a move away from fighting runaway inflation and toward supporting sustainable economic growth.
As of January 2026, following the Fed’s most recent policy decision in December, the federal funds target range stands at 3.50%–3.75%. While future moves will depend on incoming economic data, most economists expect any additional cuts this year to be gradual and measured.
So what’s driving this shift — and what does it mean for borrowers?
Why the Fed Is Cutting Rates Now
Inflation has eased significantly from its 40-year peak in 2022. By late 2025, inflation had moderated into the high-2% range, a meaningful improvement from the 9% levels seen just a few years ago. The Fed’s earlier rate hikes played a major role in cooling demand and slowing price growth.
At the same time, the broader economy has remained relatively resilient. Employment levels have held up, consumer spending has continued, and recession fears have softened. In response, the Fed is now carefully easing rates to support ongoing growth without reigniting inflationary pressures.
“After years of relying on rate hikes, the Fed is now cautiously calibrating cuts in a ‘soft landing’ environment,” said Scott Hopf, Executive Vice President and Chief Operating Officer at Union Savings Bank. “They’re working to support economic momentum while still keeping a close eye on inflation risks.”
What This Means for Consumers and Homebuyers
Lower Fed rates don’t immediately translate into sharply lower consumer loan rates, but the effects are beginning to show. Borrowing costs for credit cards, auto loans, and mortgages have started to stabilize and, in some cases, edge lower.
As of early January 2026, 30-year fixed mortgage rates remain in the low-to-mid 6% range, a noticeable improvement from the peaks seen in 2023 and 2024, though still higher than the ultra-low levels many buyers remember from earlier years.
Meanwhile, the housing market has cooled compared to the rapid appreciation of recent years. Home price growth has slowed nationally, and some markets have experienced modest declines. For buyers who paused their plans during periods of higher rates and intense competition, today’s market may offer more flexibility — both in pricing and negotiating power.
“If you’ve been waiting for conditions to improve, this environment may be worth another look,” Hopf said. “Inventory has improved in some areas, and the pace of price growth has cooled compared to the last few years.”
How Adjustable-Rate Mortgages Fit Into Today’s Market
In a changing rate environment, adjustable-rate mortgages (ARMs) can be a strategic option for some borrowers. ARMs typically start with a fixed-rate period — often 5, 7, or 10 years — before adjusting based on a market index such as the Secured Overnight Financing Rate (SOFR).
Because of their structure, ARMs often offer lower initial rates than traditional fixed-rate mortgages. As of January 2026, average 5/1 ARM rates are roughly in the mid-5% range, compared with low-to-mid-6% rates for 30-year fixed mortgages.
“In today’s market, ARMs can offer some of the lowest initial monthly payments available,” said Sean Bunevich, Vice President of Consumer Direct at Union Savings Bank. “They can be a good fit for buyers who expect to move, refinance, or adjust their housing plans within the next several years.”
Bunevich also noted the flexibility ARMs provide: “During the fixed-rate period, borrowers can work closely with their loan officer to monitor rate trends and explore refinancing options if conditions improve.”
Union Savings Bank offers a wide range of mortgage solutions — including adjustable-rate and fixed-rate loans, FHA, VA, and jumbo options — serving communities across Ohio, Indiana, Kentucky, and Pennsylvania.
What’s Next for Interest Rates?
Looking ahead, the Federal Reserve has signaled a cautious approach. Policymakers expect inflation to continue moderating, but they remain focused on balancing growth with price stability. Many forecasts suggest rates could gradually drift lower over time, though sudden or aggressive cuts appear unlikely unless economic conditions change materially.
“Current trends point toward a more balanced rate environment than we’ve seen in recent years,” Hopf said. “The path forward will depend on how inflation, employment, and global economic factors evolve.”
Navigating a Changing Rate Environment
Rate cycles don’t turn overnight, but the landscape today looks very different from what it did just a few years ago. For homebuyers and homeowners alike, understanding how interest rate changes affect financing options is critical.
“At Union Savings Bank, our focus is on helping borrowers understand their options and choose the loan that fits their long-term goals,” Bunevich said. “In a changing environment, having a knowledgeable, local lending partner makes all the difference.”
Interested in learning more? Contact Union Savings Bank at 833-301-2505 or visit usavingsbank.com to get started.