Will Interest Rates Go Down In 2026?

Will Interest Rates Go Down In 2026?

As 2025 comes to a close, many people are still asking the same question they had at the start of the year: Have interest rates go down in 2025, and Will interest rates go down in 2026?

We have already seen the first cuts after one of the fastest tightening cycles in decades. Policy rates are off their peak, mortgage and loan costs have eased a little, and savings rates are not quite as generous as they were at the top. At the same time, it does not feel like cheap money is back, and markets are already looking ahead to 2026.

This article will explore what has happened in 2025, why some central banks have started to ease, and what you can expect if you’re wondering will interest rates go down in 2026.

Why Interest Rates Have Been Such A Big Issue

To understand why will interest rates go down in 2026 is such an important question, it’s useful to remember where we’ve been.

From 2020 to early 2022, interest rates in many major economies were close to zero. Central banks were trying to support growth through the pandemic and its aftermath.

When inflation surged, that changed quickly. We saw:

• One of the fastest tightening cycles in decades
• Policy rates jumping from near zero to multi year highs
• Borrowing costs rising sharply across credit cards, auto loans and mortgages

If you were borrowing, you felt it in higher monthly payments. If you were saving, the story was the opposite. For the first time in years, high yield savings, CDs, short term bonds and money market funds paid meaningful interest.

That is why will interest rates go down in 2026 became such a common question. It directly affects how painful debt feels and how rewarding cash feels.

What Has Happened In 2025

As 2025 nears its end, we can start answering the question: will interest rates go down in 2026. In many major economies, interest rates have already moved down from their highest levels. Central banks have started easing in cautious steps, but it’s clear that rates are not returning to the ultra-low levels seen in the years before the pandemic.

Here’s what we know so far:

• In the US, the Federal Reserve has made the first rate cuts, lowering the federal funds rate from 5.25% to 3.75–4.00% by late 2025. This cautious move has many asking, will interest rates go down in 2026?
• In the Eurozone, the ECB began cutting rates in mid-2024, and the deposit rate is now at 2%, down from its peak of 4%.
• In the UK, the Bank of England has also started easing, bringing Bank Rate from 5.25% down to 4% by mid-2025.

Despite these cuts, the real question is how far rates will fall, and whether 2026 will see further cuts or a hold in rates, depending on inflation and economic growth.

What Will Drive Interest Rates in 2026?

When you ask will interest rates go down in 2026, you’re really asking about the factors that will shape the future of interest rates. Three key drivers will dictate how far rates move:

1. Inflation Trends

Inflation has been the main driver behind rate movements. For rates to continue dropping into 2026, inflation must stay under control. If inflation remains well above 2%, central banks are unlikely to cut aggressively.

• In the US, inflation fell from its peak in 2022, but core inflation (which excludes food and energy) has remained sticky.
• In the Eurozone, inflation is also moderating, but policymakers are still cautious.

So, will interest rates go down in 2026 depends on whether inflation continues to fall towards central bank targets, or if it unexpectedly rises again. Inflation will likely still be the top factor determining the pace of cuts.

2. Economic Growth and Job Markets

The health of the economy, specifically growth and job markets, will also impact the future path of interest rates.

• If the economy slows significantly in 2025, with rising unemployment, central banks will have more room to cut rates.
• However, if growth remains steady or picks up, and unemployment stays low, central banks may be hesitant to cut aggressively, fearing that it could push inflation back up.

Currently, moderate growth is expected in 2025, which could allow for more cautious easing, but not drastic cuts.

3. Debt and Financial Stability

The global economy is carrying more debt than ever before. The level of debt is an important consideration for central banks when deciding on future rate cuts.

• Higher interest rates make debt harder to manage, especially for businesses and governments with significant borrowing.
• On the other hand, cutting too quickly could lead to inflationary pressures again.

Therefore, will interest rates go down in 2026 depends on how much debt pressures continue to build and whether central banks are willing to risk instability by cutting too quickly.alk so much about moving “carefully”. They are trying to lower rates without undoing all their work on inflation.ted to settle somewhere in a band that is clearly off the peak, but still positive in real terms.

What This Means For Borrowers And Savers

The practical impact of lower rates depends on your situation.

For borrowers

If you have variable rate debt:

• You may already have seen small reductions in monthly payments
• Further cuts in 2025 would bring a bit more relief, but are unlikely to feel like a return to free money

If you have fixed rate loans:

• If you locked in when rates were at their highest, the end of 2025 and into 2026 may be a good time to review refinancing
• You may be able to improve your rate or adjust your term, even if you do not get back to the record lows of the early 2020s

Whatever the path of policy rates, carrying long term balances on high interest products like credit cards is still one of the most expensive forms of borrowing and is best reduced as quickly as possible.

For savers and retirees

For savers, the story is the mirror image.

• As central banks cut, deposit rates and money market yields usually drift lower
• The best offers on savings accounts, CDs and short term bonds may not be as generous as at the peak, but they can still be better than in the zero rate decade

If you are close to or in retirement, the key question is how to balance:

• Enough cash and short term assets to cover near term expenses and give you peace of mind
• Enough growth assets, such as equities, to outpace inflation over the long run

The direction of rates matters, but your time horizon and risk tolerance matter more.

Will Interest Rates Go Down in 2026?

Now, let’s get to the heart of the question: will interest rates go down in 2026?

Projections suggest that central banks will continue to ease cautiously through 2025, but they’re unlikely to make dramatic moves. In most cases, interest rates are expected to fall in small steps, and only if inflation stays under control and growth remains stable.

Here’s a look at what we can expect:

1. In the US

The Federal Reserve is expected to gradually lower rates, with projections suggesting the federal funds rate could end 2026 around 3.0% to 3.5%. However, any further cuts will depend on whether inflation continues to trend down and whether the economy avoids a recession.

2. In the Eurozone

The European Central Bank has already started cutting and is expected to hold rates steady in 2026. Some economists believe the deposit rate could remain at 2%, as inflation nears target, but growth remains sluggish.

3. In the UK

The Bank of England has already made several cuts and is likely to continue easing into 2026. Projections suggest that the Bank Rate could be around 3.5% by mid-2026.

Of course, this is all conditional. A stronger than expected rebound in growth or a new surge in inflation could delay or reduce cuts. A sharper slowdown or signs of financial stress could push central banks to ease more than they currently suggest.

The message for 2026 is not a straight line down, but a year of fine tuning.

Conclusion

As 2025 wraps up, the picture is clearer than it was a year ago. Interest rates have started to come down, but not in a dramatic way, and that “cheap money” era everyone remembers is still out of reach. We are living in a middle ground. Rates are no longer painfully high, yet they are not low enough to ignore.

Looking into 2026, the most realistic expectation is more of the same: small, careful moves rather than big swings. Central banks will keep watching inflation, growth and jobs data, and adjust step by step. That means the best thing you can do is not try to outguess every decision, but build a plan that works across different scenarios.