Lending perspectives: Local banks respond to recent federal rate cuts

By Faith Hatton, posted Oct 9, 2025 on BizFayetteville.com

Chair Powell answers reporters' questions at the FOMC press conference on Sept. 17, 2025. Photo provided by the Federal Reserve.

On Wednesday, Sept. 17, the Federal Open Market Committee (FOMC) announced that it had decided to lower the target range for the federal fund rate by one-quarter percentage point, bringing the new rate to 4.00% - 4.25%.

In a statement by the FOMC issued by the Federal Reserve, the decision was linked to recent indicators suggesting that growth of economic activity moderated in the first half of the year.

“My colleagues and I remain squarely focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people. While the unemployment rate remains low, it has edged up, job gains have slowed and downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated,” said Chairman of the Federal Reserve Jerome Powell during a press conference.

The new rate can affect everyday consumers by influencing interest rates for loans, credit cards, bank accounts and more. According to officials at United Bank, the recent rate change may not have a significant impact on rates for their long-term borrowing needs.

“While a lower (or higher) federal funds rate can affect the average consumer to a certain degree, such as influencing short-term interest rates for credit cards and savings accounts, this isn’t exactly the case for longer-term borrowing,” said United Bank VP and Senior Fiduciary Wealth Advisor, Mark Pera. “The Fed’s rates do not necessarily directly impact the cost of borrowing consumers might utilize for bigger purchases such as 30-year mortgages and five-year car loans. We might expect to see a trend towards increased consumer spending and less saving if the Fed continues to cut rates, but for now we are keeping an eye on the ever-changing financial landscape and maintaining a neutral approach dependent on current market data.”

For banks, the federal fund rate changes the cost of overnight borrowing from other banks and affects the interest banks charge customers for loans and offer on deposits. A lower rate, such as in this instance with the rate dropping from it’s original place of 4.25% - 4.50% down to 4.00% - 4.25%, is expected to reduce costs and encourage more borrowing and investment which will have a positive impact for banks.

“In my opinion, this rate cut, and possibly the next few, will affect rates that banks pay for deposits more than what we charge on loans,” said Lumbee Guaranty Bank CEO Kyle Chavis.

“The yield curve has been inverted or at least flat for some time. This is because while the Federal Reserve was increasing rates over the past few years, loan rates, which are typically longer-term rates, did not increase as quickly as short-term rates, which usually drive deposit rates. This latest cut, and likely any subsequent ones, will help pull down the short end of the curve, which should have a positive impact on bank profitability.”

In Fayetteville, executives say that while the results of the rate drop won’t be available for some time, it is a positive move for borrowers.

“Overall, this is an incremental adjustment,” said Kevin Bunn, First Bank’s city executive in Fayetteville. “And while it does potentially offer some relief to borrowers with variable rates like those on a credit card, the full impact of the update will likely bear out based on subsequent Fed actions over the remainder of 2025 and into early next year. Regardless, we remain focused on building trusted relationships with our customers and on providing them with the flexibility and options they need to achieve their goals no matter the rate environment or economic shifts.”

Overall, regional banks are leaning towards a positive response to the news, hoping that it will increase consumer activity.

“Locally, activity and opportunities continue to be steady. The recent rate reduction is reassuring and hopefully signals a new period of easing that should build confidence and activity moving forward,” said President for Eastern NC of Dogwood State Bank Greg Reames.

The Federal Reserve and the Federal Open Market Committee released the economic projections from the Sept. 16-17 FOMC meeting that led to the decision to cut rates. You can find that information at www.federalreserve.gov/newsevents.

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