Thinking About a Fixed Annuity? Now May Be the Time to Act.

The next two weeks could represent a rare window to lock in strong fixed annuity rates before expected Federal Reserve cuts. According to the CME Group’s FedWatch tool – a component of the CME Group, the world’s leading derivatives marketplace – there is an 87% probability of a Federal Reserve interest cut in September – and it could conceivably be as big as 0.5%.

Although President Trump has pushed for cuts, the real driver is the labor market slowdown. The number of new jobs in the three months ending in July has plummeted — the largest downward revision outside of recessions since 1967. This strongly suggests that the economy is facing a sharp downturn, if not a recession, if interest rate cuts, which fuel the economy, are not implemented.

Here are the specifics. The U.S. labor market in July added only 73,000 jobs, compared to more than 200,000 earlier in 2025.  In addition, in the previous two months, the number of new jobs was slashed by 258,000 jobs in May and June payrolls. This cut three-month payroll gains to just 35,000 — a sharp slowdown influenced in part by concerns over new tariffs.

“There are many reasons why right now that could be the perfect time for (the purchase of) a standard fixed annuity,” says Lamia Chowdhury, a senior financial editor at Annuity.org, which has been providing annuity education and assistance to consumers for almost a decade. “Fixed annuity rates are among the highest they have been in over a decade,” she says, adding that a weakening economy strongly pressures the Fed to trim interest rates to help strengthen it.   

Today’s top fixed annuity rates are 6.1% for a three-year plain vanilla fixed annuity and 6.25% for a five-year annuity. The pros who follow this sort of thing don’t see this lasting much longer and don’t think rate declines will be limited to September alone.

Here’s some background: 

Annuity providers (insurance companies) primarily invest customer premiums into conservative, fixed-income instruments, such as bonds and mortgage-backed securities, to generate the returns needed to fund their guaranteed payouts. 

When interest rates in the broader market are higher, insurance companies can earn more from conservative investments, enabling them to offer higher guaranteed interest rates.

When rates fall, on the other hand, they earn less from their new bond investments and typically reduce the guaranteed interest rates on new fixed annuities, lowering payout rates. Falling bond rates, a precursor to annuity rates, recently suggest that guaranteed interest rates are approaching the cusp of lower payout rates for new annuity owners.

The annuity market, like bond markets, is forward looking. Insurance companies price their products mostly based on where they expect long-term interest rates to go. If there is a strong consensus, as there is today, that the Fed will lower rates, some insurers often adjust their offerings before the official announcement. This is why interested consumers should move sooner, not later.

Currently, it’s unclear if any insurers are doing this. But they still have ample room to do so because the Fed’s September meeting doesn’t conclude until September 17, which is when a change in interest rates would be announced.

So what’s the most likely scenario ahead? Economists and bankers generally expect interest rates to trend downward over the next few years. Declines are likely to move slowly, however, settling into a ‘higher for longer’ plateau rather than the ultra-low rates seen before 2022.

At this point, many forecasters contend the Fed will begin a series of rate cuts in the latter half of 2025.  Projections for the federal fund rate by the end of the year often fall into the range of as low as 3.5%, compared to roughly 4.25% today.  They add that investors should further anticipate gradual cuts in 2026 and 2027, driven by disinflation and potential economic softening.  Some computer models suggest there will be a target range of 2.25% to 2.5% by the end of 2027. This implies a significant easing from peak rates but a normalization to a level still higher than the near-zero rates of the 2010s.

While the aforementioned annuity payout prospects clearly suggest that annuity rates and thus payouts will decline, there is no absolute guarantee. High inflation could conceivably persist, partly because of Trump-imposed tariffs. Or wage growth could remain relatively high and inflation expectations high. There also could be unexpected job gains and continued strong consumer spending. There could even be global conflicts and supply chain disruptions, which would spark more inflation. 

In the end, however, most experts believe the former, not the latter.

Annuities work similarly in reverse for the buyer. When interest rates are high, as they are now, you can buy into a better guaranteed return or income stream. When they start falling, payout rates will follow suit. This is why potential customers of fixed annuities should make a modest gamble and consider a purchase now. For investors looking for stability, locking in today’s annuity rates may be one of the simplest ways to secure steady income before yields inevitably fall.