WASHINGTON (AP) — The Federal Reserve cut its benchmark interest rate by an unusually large half-percentage point on Wednesday. The drastic change in policy after more than two years of high interest rates helped curb inflation but also made credit painfully expensive for American consumers.

The rate cut, the Fed’s first in more than four years, reflects its new focus on strengthening the labor market, which has shown clear signs of weakening. Just weeks before the presidential election, the Fed’s move could also shake up the economic landscape just as Americans prepare to vote.

Watch Jerome Powell’s remarks in the player above.

The central bank cut its benchmark interest rate to around 4.8 percent, ending 14 months of 5.3 percent, a two-year high, where it had been sitting as it tried to contain the worst wave of inflation in four decades. Inflation has fallen from a peak of 9.1 percent in mid-2022 to a three-year low of 2.5 percent in August, not far above the Fed’s two percent target.

Fed policymakers also signaled that they expect a further half-percentage point cut in the key interest rate at their last two meetings of the year in November and December. And they expect four more rate cuts in 2025 and two in 2026.

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In a statement and a press conference with Chairman Jerome Powell, the Fed came closer than ever to defeating inflation.

“We know it’s time to more appropriately calibrate our (interest rate) policy given the progress we’ve made on inflation,” Powell said. “We’re not saying ‘mission accomplished’ … but I have to say we’re encouraged by the progress we’ve made.”

“The U.S. economy is in a good position,” he added, “and our decision today should help keep it there.”

Although the central bank now believes inflation has been largely defeated, many Americans remain angry about the still high prices of food, gasoline, rent and other essential goods. Former President Donald Trump blames the Biden-Harris administration for the rise in inflation. Vice President Kamala Harris, in turn, has accused Trump’s announcement to impose tariffs on all imports of raising prices even further for consumers.

Rate cuts by the Fed should lead to lower borrowing costs for mortgages, auto loans and credit cards over time, strengthening Americans’ finances and leading to more spending and growth. Homeowners can refinance mortgages at lower rates and save on monthly payments. They can even convert credit card debt into cheaper personal loans or home equity loans. Businesses can also borrow more and invest more. According to Freddie Mac, average mortgage rates have already fallen to an 18-month low of 6.2 percent, leading to a surge in demand for refinancing.

“It’s a step in the right direction,” Laura Rosner-Warburton, senior economist at MarcoPolicy Perspectives, said of the Fed’s move on Wednesday.

The announced further interest rate cuts would “prevent risks from building up and the unemployment rate from rising. They are trying to keep the economy in good shape,” she said.

In an updated set of forecasts, policymakers collectively expect inflation to fall faster than three months ago, but also higher unemployment. They forecast their preferred inflation indicator to fall to 2.3 percent by year-end from 2.5 percent currently, and to 2.1 percent by the end of 2025. And they now expect the unemployment rate to rise further this year, to 4.4 percent from 4.2 percent currently, and to remain at that level until the end of 2025. That’s above their previous forecasts of 4 percent for the end of this year and 4.2 percent for 2025.

At his press conference, Powell was asked whether the Fed’s decision to cut interest rates by an unusually large half a percentage point was an admission that it had waited too long to cut lending rates.

“We don’t think we’re behind,” he replied. “We think this is the right time. But I think you can see this as a sign of our determination not to fall behind. We’re not seeing (unemployment) claims rising, we’re not seeing layoffs rising, and we’re not hearing anything from businesses that’s going to happen.”

He added: “Some people say you need to support the labour market when it is strong, not when there are layoffs. We do not believe we need further easing of labour market conditions to bring inflation down to two per cent.”

The Fed’s next meeting is Nov. 6-7 – immediately after the presidential election. By cutting rates this week, just before the election, the Fed risks attacks from Trump, who has argued that cutting rates now would amount to political interference. However, Politico reported that even some key Senate Republicans who were interviewed expressed support for a Fed rate cut this week.

Powell rejected any suggestion that the Fed should not cut interest rates so close to an election.

“We serve no politician, no political figure, no cause, no concern,” he said. “It’s all about maximum employment and price stability in the interest of all Americans. And that’s how the other central banks are set up. It’s a good institutional arrangement that has been good for the public, and I hope and firmly believe it will continue to be that way.”

Powell’s description of the economy as fundamentally healthy, with controlled inflation and stable employment, but likely to benefit from interest rate cuts, was an implicit refutation of Trump’s warnings that economic disaster was looming.

The Fed’s move on Wednesday reverses the inflation-fighting measure it initiated with 11 rate hikes in 2022 and 2023. Wage growth has slowed since then, removing a potential source of inflationary pressure. And oil and gas prices are falling, a sign that inflation is likely to ease further in the coming months. Consumers are also pushing back against high prices, forcing companies like Target and McDonald’s to lure in customers with special offers and discounts.

The Fed’s decision sparked dissent from a board member for the first time since 2005. Michelle Bowman, a board member who has expressed concerns in the past that inflation has not been fully defeated, said she would have preferred a quarter-percentage point rate cut.

But Fed policymakers overall seem to recognize that employers have been hiring fewer new workers after years of strong job growth, and the unemployment rate has risen nearly a full percentage point from its half-century low to a still-low 4.2 percent in April 2023. Once unemployment rises that high, it tends to keep rising.

At the same time, officials and numerous economists noted that the increase in unemployment this time was due less to layoffs than to the influx of job seekers – especially immigrants and college graduates.

The Fed’s focus is currently on “preserving the health of the labor market and preventing unnecessary damage to the economy from a fairly restrictive (interest rate) stance,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

AP writers Alex Veiga in Los Angeles, Paul Wiseman and Josh Boak in Washington and Stan Choe in New York contributed to this report.