Fed cuts rate a half point Fed cuts rate a half point

US ECONOMY

WASHINGTON - The Federal Reserve on Wednesday cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates that helped tame inflation but also made borrowing painfully expensive for American consumers.

The rate cut, the Fed's first in more than four years, reflects its new focus on bolstering the job market, which shows clear signs of slowing. Coming just weeks before the presidential election, the Fed's move also has the potential to scramble the economic landscape just as Americans prepare to vote.

The central bank's action lowered its key rate to about 4.8%, down from a two-decade high of 5.3%, where it stood for 14 months as it struggled to impede the worst inflation streak in four decades. Inflation tumbled from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August, not far above the Fed's 2% target.

Central banks around the world dramatically increased borrowing costs from near zero during the COVID-19 pandemic when prices started to shoot up, first as a result of supply chain issues and then because of Russia's full-scale invasion of Ukraine, which pushed up energy costs. As inflation rates fell from multi-decade highs, they started cutting interest rates.

The Fed's policymakers also signaled they expect to cut their key rate by an additional half-point in their final two meetings this year, in November and December. They envision four more rate cuts in 2025 and two in 2026.

In a statement and in a news conference with Chair Jerome Powell, the Fed came closer than it has before to declaring victory over inflation.

"We know that it is time to recalibrate our (interest rate) policy to something that's more appropriate given the progress on inflation," Powell said. "We're not saying, 'mission accomplished' ... but I have to say, though, we're encouraged by the progress that we have made.

"The U.S. economy is in a good place," he added, "and our decision today is designed to keep it there."

Though the central bank believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Republican former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Democratic Vice President Kamala Harris, in turn, says Trump's promise to slap tariffs on all imports would raise prices even further.

Rate cuts by the Fed should, over time, lead to lower borrowing costs for mortgages, auto loans and credit cards.