The Federal Reserve on Wednesday announced a long-awaited interest rate cut, lowering the benchmark rate by 50 basis points from what was the highest level in 23 years as the central bank eased borrowing costs following progress in the fight against inflation.
The Fed's first interest rate cut since March 2020 lowers the benchmark federal funds rate to a range of 4.75% to 5%.
Interest rates had been at a range of 5.25% to 5.50% since July 2023, the highest level since 2001, as the central bank monitored economic data for signs that stubborn inflation was trending toward its 2% target.
Recent months delivered signs of progress that inflation is heading toward the Fed's target, although the latest data showed it isn't quite there yet. Inflation slowed to 2.5% on an annual basis in August, down from 2.9% the month before and well below this inflationary cycle's peak of 9.1% in June 2022.
Federal Reserve Chair Jerome Powell said in a press conference following the announcement that the central bank is focused on "achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people."
"Our economy is strong overall and has made significant progress toward our goals over the past two years," Powell said. "This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%."
Powell previously signaled that the central bank didn't plan to wait for inflation to reach 2% to cut interest rates.