The Fed gives the US its first jumbo interest-rate cut in 4 years

• The Federal Reserve cut interest rates by 50 basis points on Wednesday.
• It's the first interest-rate cut in over four years.

An interest-rate cut has arrived — and it's a big one.

On Wednesday, the Federal Open Market Committee announced it would be cutting interest rates by 50 basis points. It's the first time the Federal Reserve has cut rates since March 2020.

This puts an end to the central bank's aggressive inflation fighting during the pandemic and confirms Fed Chair Jerome Powell's remarks during his address at Jackson Hole last month, during which he said that "the time has come for policy to adjust": The economy is continuing to inch toward the Fed's 2% inflation target, and it would soon be appropriate to ease off of the restrictive monetary policy.

The consumer price index, which measures inflation, rose 2.5% year over year in August, coming in below July's 2.9% reading. The unemployment rate also unexpectedly ticked down in August, giving the Fed the data it needs to cut rates.

According to CME FedWatch, which estimates interest rate changes based on market predictions, a rate cut was all but certain; the question was how big of a cut the Fed would implement. Markets were expecting a 50-basis-point cut, per the predictions, and Wednesday's announcement fell in line with expectations.

Additionally, some economists and Democratic lawmakers have been calling for a rate cut of at least 50 basis points for months. Skanda Amarnath, executive director of advocacy group Employ America and a former Fed economist, told reporters at a Monday briefing that "it's better to act early."

"It's better to move faster before the data is screaming that we're in a recession because, by that time, 50 basis points may be just not enough," he said.

Democratic Sens. Elizabeth Warren, John Hickenlooper, and Sheldon Whitehouse wanted Powell to go even further, urging him in a Monday letter to cut interest rates by 75 basis points.

"If the Fed is too cautious in cutting rates, it would needlessly risk our economy heading towards a recession," they wrote.

While Powell has faced criticism from some experts and lawmakers for waiting too long to cut rates, he has said multiple times that it was better for the Fed to hold off until it received all the data it needed rather than cutting rates too early and having to hike again at a later date.

It's unclear how aggressively the Fed will continue to cut in the coming months, but it'll take time for Americans to feel the relief's impact. There will likely be lags in the housing and car industries, as a single rate cut will not have a material impact in the short term. The same goes with credit cards — interest rates on credit cards have been at historic highs, and it'll take a while for those with balances to see relief.

Specifically, credit-card interest rates have almost doubled over the past decade to 22.8%, with delinquencies on the rise, and average rates for 30-year fixed mortgages now stand at 5.50%.

But overall, it's a positive signal for the direction of the US economy.

"They're going to cut rates this week," Bharat Ramamurti, senior advisor for economic strategy at the American Economic Liberties Project, told reporters during a Monday briefing. "And that is a sign from the body that is most focused on this, that our war on inflation is over."