WASHINGTON — The Federal Reserve cut interest rates by half a percentage point on Thursday, its first reduction since 2023, as policymakers pivot from fighting inflation to supporting a softening labor market.
The Federal Open Market Committee voted unanimously to lower the federal funds rate to a range of 4.25% to 4.50%, marking a significant shift in monetary policy after maintaining rates at their highest level in over two decades.
“Recent indicators suggest that economic activity has been expanding at a moderate pace, but job gains have slowed,” Fed Chair Jerome Powell said during a press conference following the announcement. “The Committee judges that the risks to achieving its employment and inflation goals have moved into better balance.”
The decision immediately impacts millions of American consumers and businesses. Major banks including JPMorgan Chase, Bank of America, and Wells Fargo announced they would lower their prime lending rates from 7.50% to 7.00%, effective immediately.
Credit card rates, which reached historic highs averaging 24.37% in early 2026, are expected to decline in coming weeks. Ted Rossman, senior industry analyst at Bankrate, estimates consumers could see rates drop by approximately 0.50 percentage points over the next billing cycle.
“This is meaningful relief for the 50% of credit card holders who carry balances month to month,” Rossman said. “On an average balance of $6,360, this could save consumers about $32 annually.”
The rate cut also affects mortgage markets, where the average 30-year fixed rate had climbed to 7.89% last month. Following the Fed’s announcement, the 10-year Treasury yield fell 12 basis points to 4.43%, suggesting mortgage rates could drop below 7.5% in coming weeks.
Auto loan rates, currently averaging 8.21% for new vehicles, are also expected to decline, potentially spurring demand in a sector that has struggled with affordability concerns.
The decision comes as inflation has cooled to 2.8% annually, approaching the Fed’s 2% target, while unemployment has risen to 4.3% from last year’s low of 3.5%.
Financial markets rallied on the news, with the S&P 500 closing up 1.8% at 5,847 points. Banking stocks led gains, with the KBW Bank Index rising 3.2%.
The Fed indicated additional rate cuts could follow if economic conditions warrant. The committee’s updated projections suggest rates could fall to 3.50%-3.75% by the end of 2026.
“Today’s action reflects our confidence that inflation is moving sustainably toward 2%, and that the labor market remains strong but is no longer overheated,” Powell said.
The rate cut provides relief to borrowers but presents challenges for savers, who have enjoyed higher yields on savings accounts and certificates of deposit. The average high-yield savings account rate of 4.75% is expected to decline in coming months.