The US Federal Reserve cut its key interest rate on Wednesday for the first time in four years.

The highly anticipated move will impact mortgage, credit card and savings rates for millions of people in the United States – and even around the world.

The US Federal Reserve lowered the key interest rate by half a percentage point to a range of 4.75 to 5 percent.

So what does this mean for you?

The Fed’s benchmark interest rate – the interest rate it charges banks for loans – sets the basis for how much companies charge U.S. citizens for loans such as mortgages or other debts such as unpaid credit card debt.

That rate has been oscillating at around 5.3% for over a year, its highest level since 2001, after soaring from near zero in early 2022.

A reduction would be a welcome relief for borrowers, but would also likely mean that some banks would lower their interest rates for savers.

In the US, mortgage rates have already fallen somewhat, partly in anticipation of this move.

Americans will be most affected by such a change. But central banks whose currencies are pegged to the dollar often tie their interest rate decisions to the Fed, such as Hong Kong and many Gulf states, so borrowers in those countries will also feel the impact.

For the many people outside the U.S. who are invested in the U.S. stock market, a cut is probably good news as well.

Lower interest rates tend to lead to higher stock prices for two reasons.

First, it means that companies can borrow at lower costs and reinvest them to increase the profitability of their business.

Second, lower interest rates make savings accounts and other forms of investment less attractive, so investors tend to shift their money into assets such as stocks.

Compared to other central banks, the Fed is a bit late with its interest rate cutting party.

Interest rates have already been cut in Europe, the UK, New Zealand and Canada, as have many banks in emerging markets.

The Fed, in turn, lowers or raises interest rates in response to two factors: inflation and employment.

When the Fed began raising interest rates in 2022, its officials focused on inflation and wanted to stabilize consumer prices, which were rising at a rate not seen since the 1980s.

A rise in interest rates tends to lead to lower prices because it makes it harder to borrow money, causing people to spend less on everything from consumer goods to homes and business equipment.

However, lower demand also means that the economy grows more slowly. When economic growth slows too much and even begins to shrink, it is a recession.

In the past, the U.S. economy has often fallen into recession after a series of interest rate hikes, causing millions of people to lose their jobs.

And over the past year, unemployment in the United States has risen as hiring has declined sharply.

Did the Fed lower interest rates because it was successful in fighting inflation or because the economy is in danger?

Many analysts believe the former is the case. Price inflation reached 2.5 percent in August.

Officials have said they are increasingly confident that inflation is returning to normal levels, so their attention is now turning to risks to the labor market.

One factor that officials say has no influence on their decision is the election.

Republicans and Democrats have been closely watching the Fed’s moves for two years, and a rate cut is likely to help the Democrats as the governing party.

But Fed Chairman Jerome Powell has repeatedly stressed that the bank’s actions are based on economic data, not politics.

The move was certainly unexpected.

Ahead of the meeting, analysts were divided as to whether the Fed would announce a 0.25 percentage point cut or opt for a larger and more unusual 0.5 percentage point cut.

Most thought a reduction of 0.25 percentage points was the most likely, but that did not happen.

For a bank that had taken great pains to announce its moves well in advance, the level of uncertainty was unusually high.