The Fed Is Lowering Interest Rates, Is It Safe To Buy Bonds?

After holding rates steady for five straight meetings, the Federal Reserve decided to move rates lower by 0.25 percentage points at its latest meeting on Sept. 16-17, 2025. The Fed has been trying to balance the competing demands of rising unemployment and the inflation-producing impacts of President Donald Trump’s tariffs, which are only beginning to be felt. 

“The Fed has a dual mandate of reducing unemployment while keeping inflation in check,” says Gary Zimmerman, CEO of Max. “While the most recent employment numbers were soft, inflation is also above the Fed’s target. So the Fed is in a tough spot.”

So, while inflation would seem to call for steady rates, slowly rising unemployment numbers call for lower rates. But with the Fed now lowering rates and further reductions expected in the near term, is it a good time for investors to buy bonds? Or should they hold off on bonds for now?

With the Fed lowering rates, is it time to buy bonds?

Bond investors pay particular attention to the expected path of rates because it can indicate how bonds will perform. It’s important to know that bond prices and interest rates move inversely. That is, bond prices rise when prevailing interest rates fall, and prices fall when rates rise.

But the effect of interest rates on bond prices differs depending on the bond’s maturity. The longer the maturity, the more it’s affected by a change in rates. Bonds maturing in less than a year, such as U.S, Treasury bills, are minimally impacted by normally modest changes in rates. Meanwhile, long-term bonds can move significantly as the direction of prevailing rates shifts.

While the Fed directly affects rates on short maturities, lower short-term rates may affect the longer end of the yield curve differently, depending on various factors. Still, lower short-term rates usually help long-term bonds, says Jon Knotts, chief investment officer, Expressive Wealth.

“A Fed cutting cycle usually supports duration, but the long end can still back up if sticky inflation persists, Treasury supply remains heavy, or a rising term premium develops,” says Knotts.

The effects on the longer end of the yield curve may not be as they’ve been in the past, given significant ongoing changes in the fiscal landscape that have marked 2025. The U.S. budget deficit is expected to soar even further following President Trump’s latest massive tax cut, and a recession would lead to even more deficit spending. So the effects on longer-duration Treasurys such as the 10-year note may not be what investors first anticipate. 

“The 10-year [yield] will fall or stay anchored if there is concern over soft data or recession risk,” says Knotts. “The jump in [unemployment] claims and slowing growth would tend to pull long yields down or keep them range-bound if the Fed opens the door to additional cuts.”

On the other hand, signals that inflation is picking up meaningfully may result in the opposite.

“The long end of the bond yield is priced for inflation and term risk, so regardless of what the Fed does, if the market doesn’t believe inflation is controlled and growth is positive, the market will react accordingly,” says Knotts.

“In short, the shape of the yield curve is as or more important than the simple Fed Funds rate,” says Zimmerman.

With that as backdrop, is it time to buy bonds?

What should bond investors be doing now?

Since changes in interest rates affect bonds differently depending on their maturity, the decision to invest in bonds is not just about your expectations around inflation and the economy but also about when you need the money and why you’re investing in bonds to begin with. 

“Bond investing has to be done in the context of the overall investment strategy for an investor,” says George Padula, chief investment officer, Modera Wealth Management. 

“We have been taught that, for equities, ‘timing the market’ is hard, if not impossible,” says Padula. “We can make a similar argument for bonds, so timing when to invest or not invest isn’t really the question to consider. There is always a reason to invest in bonds because bonds provide risk offsets to equities, income and diversification.” 

Padula points to the fact that yields have already come down on many Treasurys since the start of the year, including the one-year and the benchmark 10-year. Now the 10-year yield sits near its lowest levels of the year, hovering right around 4 percent. 

He recommends a diversified approach to investing in bonds, which can help mitigate the impact of broader factors such as interest rates and inflation, as well as company-specific issues.

“A bond strategy has four key components: income, risk management, credit quality and diversification,” says Padula. He suggests that a bond portfolio could have a solid mix of Treasurys, corporate and municipal bonds, inflation-protected bonds such as TIPs, as well as high-yield bonds and those of different maturities.

“It’s a good time to buy bonds — selectively,” says Knotts. “So, buy bonds, do it with a plan, not a bet.”

Knotts also favors some diversification in bonds and some opportunistic purchasing when bond auctions may push yields temporarily higher.

“An investor should consider a ladder or barbell Treasury strategies, some TIPS, favoring investment grade over high yield, and add on auction-driven sell-offs,” says Knotts.

A bond ladder is an old strategy favorite to counter interest rate risk and an uncertain outlook.

“Rather than investing in a bond at a single point in the yield curve, investors may be better served by ‘laddering’ their bond holdings across a range of maturities,” says Gene Balas, investment strategist at Signature Estate & Investment Advisors. 

“By spreading bond holdings across a range of maturities, it may help position your portfolio for interest rates that either stay high for longer in case inflation proves to be stubborn, or that may fall in case the economy slows more than expected,” says Balas.

With a lot of uncertainty in the short and medium terms and with a variety of policy changes and fiscal issues on the horizon, investors should carefully plan for some uncertainty. So investors should understand how bonds fit into their portfolio and why bonds do or do not make sense for them. So whether it’s a great time to buy depends a lot on each investor’s needs.

“Trying to time the bond market is like trying to anticipate when the fall leaves will hit their peak color,” says Padula. “We know it will be in autumn, but the exact peak is hard to pinpoint until after the fact.” 

Bottom line

With uncertainty surrounding the economic picture, bond investors should consider why they’re investing in bonds and then develop an investing strategy that mirrors that purpose. Investors who are not interested in purchasing individual bonds can opt for some of the best bond ETFs and select the duration they’re looking for.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.