The Federal Reserve on Wednesday said it is cutting its benchmark interest rate by 0.50 percentage points, marking the first reduction in four years and moving to ease borrowing costs as inflation-weary consumers are grappling with high rates on everything from mortgages to credit cards. 

It is the first drop in the federal funds rate — or what banks charge each other for short-term loans — since the U.S. central bank lowered rates to nearly zero in March 2020 amid an economic standstill caused by the pandemic. But as prices surged during the health crisis, the Fed repeatedly hiked rates into a target range of 5.25% to 5.5%, the highest in 23 years, in an effort to curb inflation.

The economic whipsaw of the past four years has left many consumers and businesses struggling with both high prices and elevated borrowing costs, even as the Fed’s rate hikes have helped cool inflation to 2.5% in August on an annual basis, close to the central bank’s 2% target. 

More recently, however. there have been some worrying signs about a slowdown in the labor market, prompting Fed Chair Jerome Powell last month to say “the time has come” to ease rates.

“A September cut, along with the possibility of at least one more this year, should be welcome news to investors,” said Joe Gaffoglio, CEO at Mutual Of America Capital Management, in an email ahead of the decision. The rate reduction, “coupled with moderating inflation, should help ease the financial strain on lower- and middle-income consumers.”

Even more important than today’s cut is what the Fed does in the months ahead as it pivots away from battling inflation to revving up the nation’s economic engines in a bid to stave off a downturn. 

Economists are forecasting that Wednesday’s rate cut will mark the first in a series of reductions this year and into 2025, with many analysts expecting the Fed to also cut its benchmark rate at its November and December meetings, according to financial data company FactSet. (The Fed doesn’t have a rate meeting scheduled in October.)

—This is a developing story and will be updated.