Fed goes with half-point interest rate cut. What that means.

This story was updated to add new information .

WASHINGTON — In the end, the Fed decided to go big.

The Federal Reserve lowered its key interest rate by a hefty half percentage point Wednesday, moving ahead with its first rate cut in four years and cheering markets that expected an emphatic move amid a softening jobs picture.

With the slowing labor market posing a growing risk to the economic expansion, Fed officials opted for a bold approach to launch a projected flurry of rate cuts now that inflation is easing.

But the central bank forecast a total of just a half point in additional cuts the rest of the year, signaling officials don’t believe the job market is collapsing.

“The (Fed) has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement after a two-day meeting. “The economic outlook is uncertain, and the Fed is attentive to the risks of both sides of its dual mandate.”

Fed officials also said “inflation has made further progress toward (their) 2% goal.”

Fed Governor Michelle Bowman was the lone dissenter, preferring a quarter-point cut.

At a news conference, Fed Chair Jerome Powell acknowledged that job growth has slowed.

"Clearly, payroll job creation has moved down in the last few months and that bears watching," he said. "The upside risks to inflation have really come down and the downside risks to employment have increased."

But he added the economy and job market are still on solid footing.

"Our intent with our policy move today is to keep it there," he said. "The time to support the labor market is while it's strong, not when you start seeing layoffs... You can take this as a sign of our commitment not to get behind."

In a research note, Ryan Sweet, chief U.S. economist of Oxford Economics, said the Fed likely should have started lowering rates in July and Wednesdays' big cut was an attempt "to get caught up." Powell told reporters officials may have started lowering rates in July if a report on unusually weak job growth that month had been available at the time.

"The September decision is a preemptive strike to increase the odds that the central bank can pull off a soft-landing" in which the Fed's high rates bring down inflation without causing a recession, Sweet said.

What is the current Fed interest rate?

The Fed’s decision lowers its benchmark short-term rate to a range of 4.75% to 5% from a 23-year high of 5.25% to 5.5%. The move is expected to ripple through the economy, providing the first dose of relief in years to Americans who have struggled with high borrowing costs for mortgages, credit cards, and auto and other loans.

Yet it also will trim bank savings account yields that finally have provided significant returns.

Are interest rates expected to go down in 2024?

Besides forecasting a dip in the federal funds rate to a range of 4.5% to 4.75% by year’s end, Fed policymakers penciled in the equivalent of four more quarter-point cuts next year and another two in 2026, according to their median estimate. That roadmap that would reduce the key rate to about 2.9% by the end of 2026.

Yet officials were divided, with nine looking for a smaller drop in rates by December, nine seeking a percentage point drop and one projecting a steeper drop. Powell said Fed officials can speed up or slow the pace of rate cuts depending on how the economy and inflation evolve.

Before the decision, futures markets correctly predicted the Fed would approve a half-point cut Wednesday. But they forecast a total 1.25 percentage points in reductions this year and officials’ median estimate fell a quarter point shy of that.

The economy has been sturdy, growing at a 3% annual rate in the second quarter, giving the Fed another reason to whittle down rates at a measured pace. But the central bank Wednesday slightly downgraded its economic growth forecast for 2024. And it raised its estimate of the year-end unemployment rate while lowering its inflation projection.

In recent months, Fed policymakers have said they were drawing closer to reducing the fed funds rate now that risks to their mandates of stable prices and maximum employment have become more balanced. Some forecasters have said the rate already should be at a “neutral” level of less than 4% – which theoretically would neither spur nor slow the economy – and the Fed was behind the curve.

The Fed lifts rates to curb borrowing and economic activity to bring down inflation. It lowers rates to stimulate the economy and stave off, or propel the nation from, recession.

Is inflation really going down?

In 2022 and 2023, the Fed hiked its key rate from near zero to subdue a pandemic-induced inflation spike. Annual inflation has fallen from a 40-year high of about 7% in mid-2022 to under 3% as COVID-19-related product and labor shortages have faded, according to the Fed’s preferred measure. But prices surged unexpectedly early this year, leading officials to put off long-awaited rate decreases.

Since April, however, inflation has steadily drifted lower, boosting officials’ confidence that it’s headed sustainably to the Fed’s 2% goal. In July, a different inflation measure, the consumer price index, eased broadly but a core reading that excludes volatile food and energy items accelerated.

Before the Fed's announcement, some forecasters said that should have solidified a more modest quarter-point rate cut Wednesday. The Fed’s preferred inflation measure, though, has been tamer. Barclays estimates a report later this month will show it fell from to 2.2% in August from 2.5% the previous month while the core measure ticked up to 2.7% as goods prices fell while the cost of services such as rent and health care marched higher.

Is the job market weakening?

Meanwhile, a job market that was sizzling as recently as last year has been wobbling. Catch-up hiring following the health crisis has largely run its course, pandemic-related labor shortages have eased and many businesses have curtailed hiring and investment because of high borrowing costs.

From June through August, average monthly job gains slowed to 116,000 from 211,000 the previous three months. And the unemployment rate rose from 3.7% in January to a still-low 4.2% last month. Job openings have tumbled to the lowest level since January 2021 and hiring has slid below prepandemic levels.

Some economists have downplayed the rising unemployment rate. Noting that layoffs have remained low, they say it has been driven by a surge of immigrants into the labor force who haven’t yet found jobs.

How high will inflation be in 2024?

Fed officials estimated Wednesday their preferred measure of annual inflation, the personal consumption expenditures index, will fall from 2.5% to 2.3% by December, below the 2.6% they predicted in July.

A core PCE inflation reading the Fed watches more closely is expected to hold stay at 2.6% by the end of the year, below the prior 2.8% estimate. It’s projected to drop to 2.2% by the end of next year.

Will the job market get better?

The 4.2% unemployment rate is projected to end 2024 at 4.4%, above the July forecast of 4%, the Fed’s median estimate shows. The rate is expected to close out 2025 at 4.4%.

How is the US economy doing right now?

The Fed said it expects the economy to grow 2% this year, below its prior 2.1% estimate. It also predicts 2% growth in 2025.

Consumer spending, which makes up 70% of economic activity, has been surprisingly resilient despite high interest rates and inflation. But low- and middle-income households are feeling the effects as they cope with record credit card debt and high delinquency rates. They have largely depleted their pandemic savings.

Want to learn more? USA TODAY explains the news on interest rates. For more answers to your questions about today's report and other economic trends, keep reading:

Trump says rate cut was too big

Donald Trump, the Republican nominee for president, called the rate cut too big.

"I guess it shows the economy is very bad, to cut it by that much ‒ assuming they're not just playing politics," Trump said during a stop at a Bitcoin bar in New York City. "The economy would be very bad, or they're playing politics ‒ one or the other. But it was a big cut."

JD Vance, Trump's running mate, during an appearance in North Carolina, said the rate cut won't mean much to people who have seen the cost of living rise in recent years: "A half-a-point is nothing compared to what American families have been dealing with for the last three years."

- David Jackson

Harris welcomes rate cut, touts economic policies

Vice President Kamala Harris, the Democratic nominee for president, said the rate cut is “welcome news,” but more work is necessary to bring prices down for consumers.

“I know prices are still too high for many middle- and working-class families, and my top priority as president will be to lower the cost of everyday needs like health care, housing and groceries,” she said

She cited her plans to cut taxes for middle- and working-class people, ban corporate price gouging, and giving people assistance with down payments for buying a house.

- Riley Beggin

How could the Fed decision affect international travel?

An interest rate cut typically means the value of the dollar abroad will go down, but travelers shouldn't worry too much about that scenario.

“Exchange rates tend to adjust when a decline is expected," said Laura Veldkamp, a professor of economics and finance at Columbia Business School. "The level of the exchange rate is set for people to not lose.”

- Zach Wichter

How did the stock market react to the Fed meeting?

The stock market offered mixed signals as trading opened Wednesday, with stocks already buoyed on hopes the Fed would deliver its first interest rate cut in four years. U.S. stocks ticked up immediately after the Fed’s announcement before losing their gains. The S&P 500, Dow Jones Industrial Average and Nasdaq composite all ended the day down roughly 0.3%.

About two-thirds of forecasters expected a half-point rate cut, while roughly one-third foresaw a more modest quarter-point cut.

Stock indexes have been trading at or near record highs in recent days, partly in expectation of Wednesday's rate cut.

- Daniel de Visé, Bailey Schulz

Interest rate cuts praised by lawmakers, but Republicans call it 'shamelessly political'

Policymakers and advocates took the opportunity to tie the rate change to the presidential election Wednesday.

Democrats and their allies praised the change, which they argued should have happened a while ago.

"This cut in interest rates is yet another acknowledgement that Powell waited too long to reduce rates," Sen. Elizabeth Warren, D-Mass., wrote on X. "The Fed has finally changed course to follow its dual mandate on prices and jobs."

AFL-CIO President Liz Schuler called the decision "long overdue" and said the decision "provides a measure of relief to working people." She added the inflation rate has slowed over the last year "as a result of Biden-Harris economic policies."

Some Republicans argued that the Fed chose to cut rates right before the presidential election in order to benefit Democrats.

"The Federal Reserve claims political independence," Sen. Kevin Cramer, R-N.D., wrote on X. "They could have waited to move rates until after the election to confirm it."

Sen. Tommy Tuberville, R-Ala., called it "shamelessly political."

House Ways and Means Committee Chairman Jason Smith, R-Mo., said in a statement that the Federal Reserve is "finally" lowering interest rates, "even though prices are still 20 percent higher, paychecks are worth less, and more families are taking on credit card debt."

"Americans aren’t just looking for relief from high interest rates, they’re looking for relief from the same old failed Biden-Harris policies that crushed them to begin with," he said.

- Riley Beggin

Will credit card rates drop?

Yes: If interest rates drop, credit card rates will “almost certainly fall from record highs in coming months, (but) no one should expect dramatically reduced credit card bills anytime soon,” said Matt Schulz, credit analyst at online marketplace LendingTree.

For example, September’s average new credit card rate was 24.92%, unchanged from August and the highest figure since 2019, when LendingTree began tracking the data. If you have $5,000 of credit card debt at a 24.92% APR and are paying $250 per month, it will take you 27 months and $1,528 in interest to pay the balance off.

Be aware, however, that financial institutions aren’t necessarily tying their annual percentage rate for credit cards to what the Fed does, said Daniel Milan, managing partner at advisory firm Cornerstone Financial Services.

“They’re pegging their rates to their own risk,” Milan said. “If credit risk is increasing ‒ balances are up, defaults are up, and savings are down ‒ then we could see (Fed) rates go down and APR go up or stay about the same, because (banks) are inputting different data.”

Credit card debt rose to a record $1.14 trillion between April and June, government data shows.

- Medora Lee

Will consumers have better access to credit?

While lenders in recent months have preferred less risky borrowers, the interest rate cut could open credit to more consumers, according to a note from Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

"It remains to be seen whether this interest rate reduction will see lenders once again offering credit to a larger segment of the consumer population, but it could help in that regard,” Raneri said.

- Bailey Schulz

Will a Fed cut help the housing market?

How much impact will a rate cut have on the housing market? Not a whole lot, experts think.

“Rates have already come down a bit in expectation that the Fed will cut,” said Rick Sharga, CEO of CJ Patrick Company, a real estate consultancy.

Last week, the 30-year fixed-rate mortgage touched its lowest in over a year and a half , after falling steadily throughout 2024. At an average of 6.2%, that’s down sharply from the peak of 7.79% last October.  The Fed doesn’t control mortgage rates, but they tend to follow the same trajectory as the 10-year U.S. Treasury note, which does respond to central bank monetary policy changes.

Mortgage rates are likely to chart a “a gradual, steady decline” over the next year or so, Sharga said. Roughly 75% of all Americans with a home loan are paying 5% or less, and he thinks rates will have to decline to about that level before many homeowners can be induced to sell and move on.

Affordability is hovering near all-time lows right now, Sharga notes, so “anything that lowers rates will be a boon.”

- Andrea Riquier

What will ‘unlock’ the housing market?

Mortgage rates are at the lowest in a year and a half – and nearly every American with a home loan still has a rate that’s lower.

The popular 30-year fixed-rate mortgage hit a recent high of 7.79% in October 2023, according to Freddie Mac data , and was as low as 6.2% in the week preceding the Fed meeting. But a recent analysis from Redfin suggests 86% of homeowners with a mortgage have a rate below 6% .

That “lock-in” effect keeping many homeowners on the sidelines is very apparent in the Ponte Vedra area of Florida, where broker Mark Good runs Prime Properties of NE Florida.

Many people are simply biding their time, Good thinks. “It’s a common misconception that the Fed changing their rates is going to cause rates to come down even further for mortgages,” he said. Some are holding out hope for a better deal, while many others simply can’t afford to give up the rate they have now. Others have expressed a desire to wait until after the November election.

Good worries that it could take a while for lower rates to work their way through the market. “The public has to accept that rates are never going to get back to 3%.”

- Andrea Riquier

Has the U.S. achieved a 'soft landing'?

In a speech last month, Fed Chair Jerome Powell explained why he believes federal regulators may have achieved a “soft landing,” meaning the Fed manages to tamp down the nation's inflation crisis without setting off a recession.

The pandemic set off the inflation spike as workers in factories, ports and warehouses were idled by COVID-19. At the same time, Americans hunkered down at home and, flush with stimulus checks, bought massive amounts of furniture, computers and other goods. Inflation, Powell said, was amplified by Russia’s invasion of Ukraine, which drove up the price of energy and other commodities.

But eventually, those pandemic-induced distortions waned as the health crisis improved. Widespread labor shortages eased. And there were so many job openings – a record 12 million in March 2022 – that the labor market was able to rebalance itself.

The Fed, Powell said, played a key role. Its rate hikes succeeded in keeping inflation expectations “anchored,” or stable, despite the sharp rise in prices.

- Paul Davidson

What are some arguments for a quarter-point rate cut?

Some economists expect a half-point interest rate cut from the Fed today. Others anticipate only a quarter-point reduction. As of midday Wednesday, forecasters are almost evenly split , with the half-point scenario holding a slight edge.

Bill Nelson, chief economist at Bank Policy Institute, predicts a quarter-point cut, because August's so-called core inflation rate "surprised on the upside, most likely taking a 50-basis-point cut," or half a point, "off the table." The core inflation rate excludes the volatile food and energy sectors.

Arnim Holzer, global macro strategist at Easterly EAB Risk Solutions, also expects a quarter-point cut, pointing to the strike at Boeing as instructive. "The rejection of a 25% pay (over 4 years) increase is a headline that is hard to miss and shows inflation expectations are top of mind and likely to remain at a higher level," he wrote in a note.

- Charisse Jones

Why would a half-point rate cut make sense?

Some forecasters expect the Fed to cut interest rates by a quarter-point Wednesday. Most, however, expect a half-point reduction. The CME FedWatch forecast tracker favored a half-point cut by a 55-45 margin at midday. (Earlier Wednesday, forecasters rated the probability of a half-point reduction even higher.)

Michael Feroli, chief U.S. economist at J. P. Morgan, leans toward a half-point cut because "downside employment risks are growing, and upside inflation risks are ebbing." But "we don’t have full confidence that the (Fed) committee agrees just yet," he said.

At a conference in Singapore on Friday, former New York Fed President Bill Dudley said , "I think there's a strong case" for a half-point cut. Dudley thought the Fed should have lowered rates at its last meeting in July, "so the question is: 'Why don't you just get started?'"

- Charisse Jones , Daniel de Visé

What will be the Fed's focus at today's meeting?

With annual inflation easing to a more than three-year low in August , rising prices are now less of a concern for the Fed. Instead, the panel has turned its focus to the other half of is dual mandate: maximum employment.

Fed Chair Jerome Powell offered these words in an August speech in Jackson Hole, Wyoming : “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability.”

Since that speech, the labor market has continued to show signs of cooling. August saw a smaller-than-expected payrolls gain and sharp downward revisions to employment figures for the previous two months. The report cemented forecasts the Fed would cut rates Wednesday to keep the job market buoyant, but the size of the cut remains a mystery.

- Medora Lee

When is the last time the Fed cut rates?

It seems a lifetime ago, but the last time the Federal Reserve cut interest rates was in March 2020, at the dawn of the COVID-19 pandemic.

The Fed unleashed much of its arsenal that month to combat the economic damage wrought by the coronavirus, cutting short-term interest rates to zero, pumping cash into the financial system and encouraging more bank loans to households and businesses.

The moves, cheered by then-President Donald Trump , were aimed at combating a recession, which forecasters considered likely.

That month, central bank policymakers agreed to lower the Fed’s benchmark federal funds rate by a full percentage point, to a range of zero to 0.25%. And that would be the last pandemic-era rate cut.

- Daniel de Visé, Paul Davidson

Why would the Fed decrease interest rates?

The central bank reduces interest rates to trim consumer and business borrowing costs , jolting a weak economy or propelling it from recession . It raises rates, or keeps them higher for longer, to dampen growth and bring down inflation. Historic inflation drove the campaign of rate increases in 2022 and 2023, leaving the Fed's benchmark rate perched at a 23-year high.

Nearly every forecaster expects the Fed to cut rates Wednesday, but economists are split on how large the cut might be: one-quarter point, or half a point. With most Fed moves well telegraphed ahead of meetings, that point of uncertainty provides some rare drama.

“It is a coin toss,” said Nationwide Chief Economist Kathy Bostjancic.

- Paul Davidson

How does the Fed interest rate work?

Interest rates don’t magically reset when the Federal Reserve raises or lowers its benchmark federal funds rate.

What, then, should consumers expect in the hours and days after an interest rate cut?

When the Fed lowers rates, it reduces the interest commercial banks pay when they borrow and lend excess reserves to each other overnight, according to Investopedia .

A Fed rate cut doesn’t immediately transform interest rates across the economy. Some types of interest rates take time to adjust. Others, including mortgage rates, have already been falling in anticipation of the Fed cutting rates this week. But many categories of loans react more or less instantaneously, experts say.

“It normally happens the next day,” Nathan Rogge, CEO of First Pacific Bank, told Marketplace . “So, if it was a Wednesday, by Thursday, you would have a different interest rate.”

- Daniel de Visé

How high is inflation?

Inflation, a sustained increase in prices throughout the economy, has been well above the 10-year median of 2.1% for more than three years. The Fed policymakers say they prefer a low and stable inflation rate , so they can "make sound decisions regarding saving, borrowing and investment."

Inflation has fallen significantly in the past two years but remains elevated – largely because of housing costs. In August, the annual inflation rate as measured by the consumer price index fell to 2.5%, from 2.9% in July. The reading was the lowest since March 2021, a year before the Fed started pushing up interest rates.

- Jim Sergent

What can borrowers expect?

If the Fed cuts interest rates today, borrowers will likely see interest rates ease off their peaks on things like credit cards and auto loans, but they shouldn't expect any great immediate relief , analysts said.

September's average rate for new credit cards was 24.92%, unchanged from August and the highest since 2019, when LendingTree began tracking the data.

"While they’ll almost certainly fall from record highs in coming months, no one should expect dramatically reduced credit card bills anytime soon," said Matt Schulz, LendingTree credit analyst. "Barring the Fed unexpectedly stomping on the gas pedal when it comes to lowering rates, credit card APRs are still going to be high for the foreseeable future."

The same goes for rates on auto loans and other types of debt, he said.

- Medora Lee

When is the next Fed meeting in 2024?

After today’s meeting, the Federal Reserve has two more opportunities to consider interest rate moves in 2024.

The remaining Fed meetings planned for 2024 are scheduled for Nov. 6-7 and Dec. 17-18.

- Medora Lee

This article originally appeared on USA TODAY: Fed goes with half-point interest rate cut. What that means.