Fed cuts interest rates by half point for first time in years. Here’s what that means for you

The Federal Reserve has broken a four-year run and cut its benchmark interest rate by half a percentage point to 4.75-5.0 percent.

This significant move signals that the US central bank believes it is winning the war on inflation and will now focus on preventing the job market from weakening.

One immediate effect should be lower borrowing costs for both consumers and businesses in the run-up to November’s presidential election.

In an official statement, the Fed’s Federal Open Market Committee said: “The Committee seeks to achieve maximum employment and inflation at the rate of two percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward two percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

The Fed’s benchmark policy rate has been held in the current 5.25-5.5 per cent range for 14 months. That is longer than three of the last six Fed “hold” periods, in which interest rates were kept steady, but shorter than what preceded the 2007-2009 financial crisis.

As Wednesday’s meeting approached, there was an air of uncertainty as to how much the rate cut would be — typically, the central bank would make changes in quarter-point (0.25%) increments, but many Wall Street traders and some economists foresaw the half-point cut announced.

As the fight against inflation draws to a close, officials at the Fed have turned their focus to shoring up a softening job market in the hope of pulling off a difficult “soft landing” — managing to bring down inflation without causing a recession.

The half percentage point