The Fed Makes a Large Rate Cut and Forecasts More to Come

The Federal Reserve cut interest rates on Wednesday by a half percentage point, an unusually large move that signals central bankers think they are winning their war against inflation and are now turning attention to keeping the job market from weakening further.

“Our patient approach over the past year has paid dividends,” Jerome H. Powell, the Fed chair, said during his news conference. But now “the upside risks to inflation have diminished, and the downside risks to unemployment have increased.”

The Fed’s decision lowers rates to about 4.9 percent, down from a more than two-decade high.

The move comes in response to months of fading inflation, and it is meant to prevent the economy from slowing so much that the job market begins to crack. Officials have been keeping a careful eye on a recent rise in the unemployment rate, and by starting off with a big cut, the Fed is effectively taking out insurance against a bigger employment slowdown.

Reinforcing that cautious message, the move came alongside economic projections that suggested a more rapid pace of rate cuts than central bankers had previously predicted: Officials now expect to make another half point of reductions before the end of the year.

“We’re going to take it meeting by meeting,” Mr. Powell said. “We made a good, strong start to this, and that is frankly a sign of our confidence, inflation is coming down.”

High interest rates slow the economy by making it more expensive to borrow to buy a house or expand a business, which weighs on both demand and inflation — but also on hiring. The Fed has been trying to strike a careful balance. Officials have aimed to cool growth enough to ensure that price increases return to normal without cooling it so much that the unemployment rate soars and the economy tips into a recession.