Federal Reserve signals end to inflation fight with a sizable half-point rate cut

WASHINGTON (AP) — The Federal Reserve on Wednesday cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of high rates that helped tame inflation but also made borrowing painfully expensive for American consumers.

The rate cut, the Fed’s first in more than four years, reflects its new focus on bolstering the job market, which has shown clear signs of slowing. Coming just weeks before the presidential election, the Fed’s move also has the potential to scramble the economic landscape just as Americans prepare to vote.

The central bank’s action lowered its key rate to roughly 4.8%, down from a two-decade high of 5.3%, where it had stood for 14 months as it struggled to curb the worst inflation streak in four decades. Inflation has tumbled from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August, not far above the Fed’s 2% target.

The Fed’s policymakers also signaled that they expect to cut their key rate by an additional half-point in their final two meetings this year, in November and December. And they envision four more rate cuts in 2025 and two in 2026.

In a statement and in a news conference with Chair Jerome Powell, the Fed came closer than it has before to declaring victory over inflation.

“We know it is time to recalibrate our (interest rate) policy to something that’s more appropriate given the progress on inflation,” Powell said. "We’re not saying, ‘mission accomplished’ ... but I have to say, though, we’re encouraged by the progress that we have made.”

“The U.S. economy is in a good place," he added, "and our decision today is designed to keep it there.”

Though the central bank now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers even further.

Rate cuts by the Fed should, over time, lead to lower borrowing costs for mortgages, auto loans and credit cards, boosting Americans’ finances and supporting more spending and growth. Homeowners will be able to refinance mortgages at lower rates, saving on monthly payments, and even shift credit card debt to lower-cost personal loans or home equity lines. Businesses may also borrow and invest more. Average mortgage rates have already dropped to an 18-month low of 6.2%, according to Freddie Mac, spurring a jump in demand for refinancings.

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

The additional rate cuts it indicated it will make, she said, will “prevent risks from building and the unemployment rate from rising. They are trying to keep the economy in good shape.”

In an updated set of projections, the policymakers collectively envision a faster drop in inflation than they did three months ago but also higher unemployment. They foresee their preferred inflation gauge falling to 2.3% by year’s end, from its current 2.5%, and to 2.1% by the end of 2025. And they now expect the unemployment rate to rise further this year, to 4.4%, from 4.2% now, and to remain there by the end of 2025. That’s above their previous forecasts of 4% for the end of this year and 4.2% for 2025.

Powell was pressed at his news conference about whether the Fed’s decision to cut its key rate by an unusually large half-point is an acknowledgement that it waited too long to begin reducing borrowing rates.

“We don’t think we’re behind,” he replied. “We think this is timely. But I think you can take this as a sign of our commitment not to get behind. We’re not seeing rising (unemployment) claims, not seeing rising layoffs, not hearing from companies that that’s something that’s going to happen.”

He added: “There is thinking that the time to support the labor market is when it’s strong and not when you begin to see the layoffs. We don’t think we need to see further loosening in labor market conditions to get inflation down to 2%.”

The Fed’s next policy meeting is Nov. 6-7 — immediately after the presidential election. By cutting rates this week, soon before the election, the Fed is risking attacks from Trump, who has argued that lowering rates now amounts to political interference. Yet Politico has reported that even some key Senate Republicans who were interviewed expressed support for a Fed rate cut this week.

Powell pushed back against any suggestion that the Fed shouldn't cut rates so close to an election.

“We’re not serving any politician, any political figure, any cause, any issue,” he said. "It’s just maximum employment and price stability on behalf of all Americans. And that’s how the other central banks are set up, too. It’s a good institutional arrangement, which has been good for the public, and I hope and strongly believe that it will continue.”

Powell’s characterization of the economy as fundamentally healthy, with inflation under control and employment stable but likely to benefit from rate cuts was an unspoken rebuttal to Trump’s warnings that an economic disaster is near.

The Fed's move Wednesday reverses the inflation-fighting effort it engineered by raising its key rate 11 times in 2022 and 2023. Wage growth has since slowed, removing a potential source of inflationary pressure. And oil and gas prices are falling, a sign that inflation should continue to cool in the months ahead. Consumers are also pushing back against high prices, forcing such companies as Target and McDonald’s to dangle deals and discounts.

The Fed’s decision drew the first dissent from a member of its governing board since 2005. Michelle Bowman, a board member who has expressed concern in the past that inflation had not been fully defeated, said she would have preferred a quarter-point rate cut.

But the Fed's policymakers as a whole appear to recognize that after years of strong job growth, employers have slowed hiring, and the unemployment rate has risen nearly a full percentage point from its half-century low in April 2023 to a still-low 4.2%. Once unemployment rises that much, it tends to keep climbing.

At the same time, the officials and many economists have noted that the rise in unemployment this time largely reflects an influx of people seeking jobs — notably new immigrants and recent college graduates — rather than layoffs.

The Fed’s attention now is “preserving the health of the labor market and preventing unnecessary damage to the economy from a pretty 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.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Ben Curtis)

FILE - The seal of The Federal Reserve System is seen during a news conference by Federal Reserve Board Chairman Jerome Powell at the Federal Reserve Board Building on July 31, 2024, in Washington. (AP Photo/Jose Luis Magana, File)

FILE - Federal Reserve Chair Jerome Powell walks outside of the Jackson Hole Economic Symposium at Jackson Lake Lodge in Grand Teton National Park near Moran, Wyo., on Aug. 23, 2024. (AP Photo Amber Baesler, File)

FILE - The Federal Reserve is in Washington is shown on Nov. 16, 2020. (AP Photo/J. Scott Applewhite, File)

FILE - A detail of the Federal Reserve building in Washington is shown on Nov. 16, 2020. (AP Photo/J. Scott Applewhite, File)

WASHINGTON (AP) — Vice President Kamala Harris on Wednesday criticized Republican Donald Trump 's promise to deport millions of people who are in the United States illegally, questioning whether he would rely on massive raids and detention camps to carry it out.

Harris, the Democratic presidential nominee, told the Congressional Hispanic Caucus Institute’s annual leadership conference that the nation can find both a pathway to citizenship for those who want to come and at the same time secure the border.

“We can do both, and we must do both,” she said.

Trump, for his part, leaned heavily on his alarmist message on immigration as he held a rally in Uniondale on New York's Long Island, focusing the bulk of his remarks on the subject.

“We’re just destroying the fabric of life in our country. And we’re not going to take it any longer. And you got to get rid of these people. Give me a shot," Trump said.

Both candidates took a break Wednesday from campaigning in the toss-up states that will likely decide the Nov. 5 election. The former president drew a large, roaring crowd, giving him a chance to show deep support even in a blue state.

He ripped into Democratic leadership in New York City and state, blaming them for homeless people living in what he called “horrible, disgusting, dangerous, filthy encampments,” and even the conditions on the New York City subway, which he called "squalid and unsafe” and promised to renovate.

“What the hell do you have to lose?" he said in asking for their votes.

Before heading out to the suburbs, Trump stopped at a Bitcoin cafe in New York City. Trump has recently embraced cryptocurrency and on Monday night helped launch his family's new cryptocurrency venture.

Harris harked back to the Trump administration's immigration policies as she bid for Hispanic support.

“While we fight to move our nation forward to a brighter future, Donald Trump and his extremist allies will keep trying to pull us backward,” Harris said. “We all remember what they did to tear families apart, and now they have pledged to carry out the largest deportation, a mass deportation, in American history.”

“Imagine what that would look like and what that would be? How’s that going to happen? Massive raids? Massive detention camps? What are they talking about?” she said.

Former president Trump has promised to carry out “the largest deportation operation in the history of our country” if he's elected in November. He has offered no details on how such an operation would work.

Trump has focused on immigration as a top campaign issue and made it a key focus of his remarks Wednesday.

“Look at what's happening,” he told his crowd in New York. "Businesses that are fleeing, money draining out of your state and hundreds of thousands of illegal migrants sucking your public resources dry.”

Trump said he plans in the next two weeks to visit Springfield, Ohio, that’s been the center of false accusations from the former president and his running mate JD Vance that members of the city’s Haitian community are abducting and eating cats and dogs. Trump also said he plans to visit Aurora, Colorado, where he says a Venezuelan street gang with a small presence in the city has taken over a rundown apartment complex. Aurora police say that’s not the case.

He has an advantage over Harris in opinion polling on whom voters trust to better handle the issue.

Meanwhile, the Teamsters labor union declined to endorse either Harris or Trump, saying neither had sufficient support from its 1.3 million members.

Harris had met on Monday with a panel of Teamsters, having long courted organized labor and made support for the middle class her central policy goal. Trump met earlier in the year with a panel of Teamsters, and its president, Sean O’Brien, spoke at his invitation at the Republican National Convention.

Trump's rally Wednesday night was in Uniondale, an area that could be key to Republicans maintaining control of the House. His party is trying to protect 18 Republicans in Democratic-heavy congressional districts that Joe Biden carried in 2020, particularly in coastal New York and California, and going on offense to challenge Democrats elsewhere.

Long Island in particular features one of the most closely watched races, between first-term Republican Rep. Anthony D’Esposito and Democrat Laura Gillen. D’Esposito is a former New York Police detective who won in 2022 in a district that Biden won by about 15 percentage points in 2020.

Trump posted Tuesday on his Truth Social platform that the GOP has “a real chance of winning” New York “for the first time in many decades." In that same post, Trump also pledged that he would “get SALT back,” suggesting he would eliminate a cap on state and local tax deductions that were part of tax cut legislation he signed into law in 2017.

The so-called SALT cap has led to bigger tax bills for many residents of New York, New Jersey, California and other high-cost, high-tax states, and is an important campaign issue in those states, particularly among those New York Republicans serving in districts Biden won.

Harris' speech to the Congressional Hispanic Caucus Institute marked the second day in a row that she has tended to constituencies considered key to the Democratic Party.

On Tuesday, she sat for an interview in Philadelphia with members of the National Association of Black Journalists. She decried Trump’s rhetoric and said voters should make sure he “can’t have that microphone again.” She has trips planned later in the week to Michigan, Georgia and Wisconsin.

Trump is attempting to return to his campaign cadence after Sunday's apparent assassination attempt as he golfed in Florida. On Tuesday, he traveled to Flint, Michigan, and has not appeared to alter plans for upcoming trips to the nation's capital and North Carolina later in the week.

His running mate, Ohio Sen. JD Vance, held an event in Raleigh, North Carolina, on Wednesday.

Meg Kinnard can be reached at http://x.com/MegKinnardAP

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Kinnard reported from Houston and Colvin reported from Uniondale, New York. Associated Press writers Darlene Superville in Washington and Michelle L. Price in New York contributed to this report.

Republican presidential nominee former President Donald Trump arrives to speak at a campaign event at Nassau Coliseum, Wednesday, Sept.18, 2024, in Uniondale, N.Y. (AP Photo/Alex Brandon)

Republican presidential nominee former President Donald Trump makes a campaign stop at Pubkey Bar and Media House, Wednesday, Sept.18, 2024, in New York. (AP Photo/Alex Brandon)

Democratic presidential nominee Vice President Kamala Harris waves to the crowd as she leaves at the Congressional Hispanic Caucus Institute (CHCI) Leadership Conference, at Ronald Reagan Building in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Jose Luis Magana)

Democratic presidential nominee Vice President Kamala Harris speaks at the Congressional Hispanic Caucus Institute (CHCI) Leadership Conference, at the Ronald Reagan Building in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Jose Luis Magana)

Democratic presidential nominee Vice President Kamala Harris arrives at the Congressional Hispanic Caucus Institute (CHCI) Leadership Conference, at Ronald Reagan Building in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Jose Luis Magana)

Democratic presidential nominee Vice President Kamala Harris speaks at the Congressional Hispanic Caucus Institute (CHCI) leadership conference, Wednesday, Sept. 18, 2024, in Washington. (AP Photo/Jacquelyn Martin)

Republican presidential nominee former President Donald Trump makes a campaign stop at Pubkey Bar and Media House, Wednesday, Sept.18, 2024, in New York. (AP Photo/Alex Brandon)

Democratic presidential nominee Vice President Kamala Harris speaks at the Congressional Hispanic Caucus Institute (CHCI) Leadership Conference, at the Ronald Reagan Building in Washington, Wednesday, Sept. 18, 2024. (AP Photo/Jose Luis Magana)

Democratic presidential nominee Vice President Kamala Harris Vice is interviewed by National Association of Black Journalists members Tonya Mosley, and Gerren Keith Gaynor, with moderator Eugene Daniels, at the WHYY studio in Philadelphia, Tuesday, Sept. 17, 2024. (AP Photo/Matt Rourke)

Republican presidential candidate former President Donald Trump speaks during a town hall event at the Dort Financial Center, Tuesday, Sept. 17, 2024, in Flint, Mich. (AP Photo/Evan Vucci)

Democratic presidential nominee Vice President Kamala Harris boarding Air Force Two, Monday, Sept. 9, 2024, near Philadelphia International Airport, in Philadelphia, Tuesday, Sept. 17, 2024. (AP Photo/Jacquelyn Martin)

Republican presidential candidate former President Donald Trump on stage with Arkansas Gov. Sarah Huckabee Sanders during a town hall event at the Dort Financial Center, Tuesday, Sept. 17, 2024, in Flint, Mich. (AP Photo/Evan Vucci)