In a speech in Jackson Hole last month, Jay Powell was clear about what he believed was the Federal Reserve’s mission as the U.S. economy recovered from a severe inflation shock.

“We will do everything in our power to support a strong labor market while we continue to make progress toward price stability,” the chairman said at the foot of the Teton Range in Wyoming.

On Wednesday, Powell delivered, cutting the Fed’s benchmark interest rate by a whopping half a percentage point to 4.75-5 percent, marking the beginning of the central bank’s first easing cycle in more than four years.

Those in charge made it clear that they do not want to leave it at that. Forecasts published on Wednesday in the so-called dot plot show that most members of the Federal Open Market Committee of the US Federal Reserve expect the key interest rate to fall by another half a percentage point this year. A series of cuts will then follow in 2025, so that the interest rate remains at 3.25-3.5 percent.

The half-percentage point cut on Wednesday did not trigger panic – which was the fear of many before the meeting – but was accepted calmly by the financial markets. The most important stock indices and government bonds ended the day with little change.

“It was innovative,” said Peter Hooper, deputy head of research at Deutsche Bank. “It was a kind of hedge to maintain a very good economic position.”

Hooper, who has worked at the Fed for nearly 30 years, added: “Powell wants to ensure a soft landing.”

The Fed’s decision is a bold move and, coming just weeks before the November presidential election, has inevitably drawn criticism. Republican candidate Donald Trump has already said the rate cut was either for “political” reasons – to help his rival in the White House race, Kamala Harris – or because the economy is in “very bad” shape.

The decision also represents a turning point for Powell in many ways, capping a turbulent period as chairman of the world’s most important central bank, marked by a global pandemic, the biggest economic downturn since the Great Depression, historic government intervention, war and severe supply shocks that exacerbated the worst wave of inflation in 40 years.

Many economists had doubted that Powell could contain price pressures without plunging the world’s largest economy into recession. But two years after the inflation spike peaked, inflation has been brought back down almost to the Fed’s 2 percent target while economic growth has remained solid.

In justifying the decision on Wednesday, the Fed chairman described the larger-than-usual rate cut as a “recalibration” of monetary policy to adapt it to an economy in which price pressures are easing significantly while demand in the labor market is cooling.

“The U.S. economy is in good shape and our decision today is aimed at keeping it there,” Powell told reporters at the press conference following the meeting.

In the past, the Fed has typically deviated from its traditional quarter-point pace of adjusting monetary policy only when it faced an outsized shock – such as at the beginning of the Covid-19 economic crisis or when it became clear in 2022 that the central bank had misdiagnosed the U.S. inflation problem.

That Wednesday’s rate cut was carried out without such severe economic or financial stress underscores the Fed’s desire to avoid an unnecessary recession. Diane Swonk of KPMG said if Powell could pull off such a soft landing, his legacy as chairman would be “sealed.”

Rather, Wednesday’s decision reflected the Fed’s efforts to balance risks to the economy. Having brought inflation under control, its focus has now turned to the labor market, where slower monthly growth and rising unemployment are concerns.

“The Fed is fully aware that from a risk management perspective, moving closer to neutral is probably the right thing to do given the economic situation,” said Tiffany Wilding, an economist at Pimco, referring to an interest rate level that neither stimulates nor slows growth.

The next step for officials is to figure out how quickly they should cut rates to reach that neutral level. In the press conference, Powell said there was no “rush to get this done.” The dot plot also showed a scatter among officials, not just for this year but also for 2025.

Two of the 19 Fed officials who provided their estimates believed the Fed should keep interest rates at the new level of 4.75-5 percent through the end of the year. Another seven predicted only a further quarter-percentage point cut this year. The range was even wider for interest rates in 2025.

Powell’s job is to build consensus at the FOMC. At that meeting, she faced opposition from Governor Michelle Bowman, who voted for a quarter-percentage point rate hike, making her the first Fed governor since 2005 to refuse to make a rate decision.

Achieving this consensus is complicated by a gloomy economic picture which, despite general improvements, shows some stagnation in inflation and emerging weakness in an otherwise solid labour market.

The presidential election also plays a major role, although Powell reiterated on Wednesday that the Fed’s decisions would be made solely on the basis of economic data.

Jean Boivin, former deputy governor of the Bank of Canada and now head of the BlackRock Investment Institute, warned that the easing cycle could be “shorter” than financial markets expected.

Traders in the futures markets have already priced in that interest rates will fall more than officials have forecast, to between 4 and 4.25 percent by the end of the year. This means that there will be another sharp cut at one of the two remaining meetings in 2024. Market participants then expect a drop to below 3 percent by mid-2025.

“The inflation outlook is subject to great uncertainty,” Boivin said, while urging caution about the extent to which the Fed can actually provide relief to borrowers in this context.

“I don’t think this is the beginning of a cycle of easing. I think this is a reversal of the tightening.”