WATCH: Federal Reserve Chair Powell delivers remarks following the Fed's announcement of an interest rate cut.

 WATCH: Federal Reserve Chair Powell delivers remarks following the Fed's announcement of an interest rate cut.

 

 WASHINGTON (AP) — In a significant move, the Federal Reserve on Wednesday slashed its benchmark interest rate by a hefty half-point, marking a major shift after more than two years of elevated rates that helped curb inflation but made borrowing increasingly difficult for Americans.

This rate cut, the Fed’s first in over four years, signals a new focus on revitalizing the slowing job market. With the presidential election just weeks away, this decision could have a profound effect on the economy as voters head to the polls.

Watch Jerome Powell’s full remarks in the player above.

The central bank lowered its key interest rate to approximately 4.8 percent, down from 5.3 percent—its highest level in two decades. The rate had remained elevated for 14 months as the Fed battled the worst inflation crisis in 40 years. Inflation has since dropped from a peak of 9.1 percent in mid-2022 to a three-year low of 2.5 percent in August, nearing the Fed’s target of 2 percent.

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Fed officials also signaled plans to cut rates by an additional half-point in the final two meetings of the year, with more cuts anticipated in 2025 and 2026.

During a news conference, Chair Jerome Powell suggested the Fed is nearing victory in its fight against inflation. "We know it’s time to recalibrate our policy given the progress on inflation," Powell said. “We’re not saying ‘mission accomplished,’ but we are encouraged by the progress made.”

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Despite progress, many Americans continue to grapple with high prices for essentials like groceries, rent, and gas. As rate cuts gradually reduce borrowing costs, mortgages, auto loans, and credit cards could become more affordable, helping homeowners refinance at lower rates and businesses invest more.

The Fed’s latest projections forecast a faster drop in inflation and a slight rise in unemployment. Inflation is expected to fall to 2.3 percent by year’s end, with unemployment rising to 4.4 percent.

Powell defended the large half-point cut, emphasizing it was timely, not overdue. He stressed the importance of acting before layoffs start to rise, adding that “the time to support the labor market is when it’s strong.”

While this rate cut comes close to the election, Powell rejected any claims of political influence, stating, “We’re not serving any politician... It’s maximum employment and price stability on behalf of all Americans.”

The Fed’s aggressive interest rate hikes in 2022 and 2023 are now being reversed as inflation cools and wage growth slows. However, some, like Fed board member Michelle Bowman, felt a smaller quarter-point cut would have been preferable, marking the first internal dissent since 2005.

Overall, the Fed’s actions reflect its efforts to support the job market while ensuring inflation remains under control.