Fed lowers interest rates by half-point; first cut in more than four years

The Federal Reserve cut a key interest rate Wednesday for the first time in more than four years of inflation fighting, reducing its benchmark rate by half a percentage point in a sign that the central bank is now more focused on a weakening job market than on high prices.

The Fed lowered its benchmark rate to a range of 4.75% to 5%, ending a series of rate hikes during the Biden-Harris administration that raised interest rates to their highest level in 23 years.

The rate cut will reduce slightly the cost of auto loans and credit card service fees, and might help to lower mortgage rates. But the short-term impact for consumers is likely to be minimal.

Fed Chairman Jerome H. Powell said inflation has eased and the U.S. economy is “in a good place.”

“The upside risks to inflation have diminished, and the downside risks to employment have increased,” he told reporters.

The Fed’s open-market committee expects the unemployment rate to rise to 4.4% by the end of the year, up from 4.2% in August.

Former President Donald Trump, the Republican presidential nominee, has blamed high spending by the administration and Congress for chronically high prices at the grocery store that are still roughly 20% higher than when he left office. Vice President Kamala Harris, the Democratic presidential nominee, has been on the defensive on inflation and has proposed a plan that would amount to government price controls.

“While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down. I know prices are still too high for many middle-class and working families,” Ms. Harris said in a statement. “My top priority as president will be to lower the costs of everyday needs like health care, housing and groceries.”

She said Mr. Trump’s agenda, including proposed tariff increases, would raise inflation and prompt a recession.

Stocks traded lower after the Fed’s announcement. The Dow Jones Industrial Average fell 103 points, or 0.2%, to close at 41,503.

The rate cut came at the Fed’s last scheduled meeting before the Nov. 5 election. The move is expected to be the first of a series of cuts into next year.

Inflation fell to 2.5% in August, after reaching a four-decade high of 9.1% in June 2022 that some economists blamed on high government spending during the pandemic.

But Fed officials have expressed concern that higher interest rates, meant to lower inflation, are now causing a slowdown in hiring as employers grapple with increased costs of doing business.

The central bank is trying to cool inflation while avoiding a recession in the U.S. Employers added 142,000 jobs in August, below expectations, and only 89,000 jobs in July.

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

Homeowners will be able to refinance mortgages at lower rates, saving on monthly payments, and even shift credit card debt to lower-cost personal loans or home equity lines. Businesses may also borrow and invest more.

Average mortgage rates have already dropped to an 18-month low of 6.2%, according to Freddie Mac, spurring a jump in demand for refinancings.

In an updated set of projections, the Fed’s policymakers now envision a faster drop in inflation than they did three months ago but also higher unemployment. They foresee their preferred inflation gauge falling to 2.3% by year’s end, from its current 2.5%, and to 2.1% by the end of 2025.

The Fed’s decision drew the first dissent from a member of its governing board since 2005. Michelle Bowman, a board member who has expressed concern in the past that inflation had not been fully defeated, said she would have preferred a quarter-point rate cut.

• This article is based in part on wire-service reports.