Fed begins cutting rates with a half-point move as inflation eases

The Federal Reserve cut its benchmark interest rate by half a percentage point on Wednesday, to a range of 4.75 to 5.00 percent. It is the first reduction since the early days of the pandemic in 2020.

The decision reflects a change in the Fed's focus. Inflation has fallen substantially from its peak in 2022, though it remains somewhat above the 2 percent target. At the same time, the labour market has cooled, with unemployment rising from its lows. Officials said they have gained more confidence that inflation is moving sustainably toward their goal.

Before the meeting, markets were divided between a quarter-point and half-point cut. The larger move was not unanimous, with one governor preferring a smaller reduction.

The Fed's projections suggest further cuts over the rest of this year and next, though officials stressed that decisions will depend on incoming data. What the move may mean:

• Borrowing costs for mortgages and loans could gradually decrease
• Returns on cash savings are likely to fall
• The dollar may weaken if US rates fall faster than those abroad

The timing, less than two months before the presidential election, has drawn political comment. The Fed maintains that its decisions are based on the economy, not the electoral calendar.