High interest rates can be a double-edged sword, especially for cities like Newton.

“We have about $300 million that we invest on a daily basis,” Newton Chief Financial Officer Lemieux said during her annual financial forecast presentation Monday night. “That investment income goes to the general fund.”

Lemieux noted that high interest rates were making the city’s plan to pursue a pension liability bond “not viable” at this time, but the city is prepared to go ahead when conditions change.

On the other hand, with hundreds of millions of dollars in investments, high interest rates have yielded hefty returns over the past several years.

In 2022 and 2023, the Federal Reserve imposed the sharpest rate hikes in recent history in an attempt to slow runaway inflation. After that happened, Newton saw a spike in interest income in 2023, and in 2024, that income peaked at about $14.1 million, which was almost $12 million more than what the city had budgeted for that year.

That’s part of what then-Mayor Ruthanne Fuller meant when announced her administration had “found” $40 million in free cash in late 2023.

This chart shows the progression of Federal Reserve interest rate cuts since January 2021. Chart made with assistance from Google Gemini AI

After the Federal Reserve lowered rates in 2024 and 2025, Newton’s interest income dropped—to $12 million for FY2025 and $10 million for FY2026.

And this year, the Federal Reserve raised the rates a little, and the city is looking at more money than forecast for FY2027.

Interest rates can be unpredictable and volatile.

“If you look back, we have more than a decade when we had practically no interest income from our investments,” Lemieux said, referring to the low-interest era of the 2010s.

The Federal Reserve has cited 2.5 percent as an ideal rate, and for that $300 million Newton invests, that amounts to a $7.5 million return. So, that’s what the city is forecasting for going forward.

“It’s aggressive, but it’s responsible,” Lemieux said.