The Federal Reserve said Wednesday it is cutting its key interest rate by half a percentage point, an unusually aggressive move to protect the economy from a further slowdown.

In announcing the rate cut, the central bank noted that employment growth had slowed and inflation had continued to rise towards the 2% target.

At a subsequent press conference, Fed Chairman Jay Powell said the labor market and the economy overall remain in “solid shape.”

But by making the bigger cut, he said, “our intention is to keep it there.”

While the rising inflation that has plagued the US economy since the start of the Covid-19 pandemic has largely cooled, inflation is still short of the Fed’s 2% target, Powell noted.

Still, the risk of prices rising again if interest rates fall is minimal, he said.

“We’re trying to get to a situation where we restore price stability without the painful increases in unemployment that sometimes accompany this inflation,” Powell said. “That’s what we’re trying to do, and I think you can take today’s action as a sign of our strong commitment to that goal.”

The federal funds rate, which serves as a benchmark for borrowing rates in the rest of the economy, is now set to fall to about 4.8%, the lowest level since March 2023.

The central bank also said it expects further cuts at its last two meetings of the year.

Markets reacted positively, with the Dow Jones Industrial Average and the S&P 500 stock indices both hitting new record highs on Wednesday afternoon.

Wall Street traders had significantly increased the odds of a half-point cut ahead of the announcement, as opposed to the usual quarter-point cut.

Still, the larger size surprised many analysts.

“The Fed’s decision to act big is a unique move in history,” Seema Shah, chief global strategist at Principal Asset Management, said in a note to clients Wednesday afternoon.

She continued: “Markets can and should celebrate today’s move — and will continue to celebrate for months to come,” she wrote. “We have a Fed that is going to great lengths to avoid a hard landing. Recession, what recession?

Brian Coulton, chief economist at Fitch Ratings, said the downgrade “indicates an abrupt shift in focus back to the maximum employment mandate and a very strong improvement in confidence in inflation’s progress over the past month and a half.”

He said the Fed “may be more concerned about the state of the labor market than most,” despite a seemingly steady pace of job growth.

The economy continues to send mixed signals of late. The unemployment rate, at 4.2%, remains historically low — but has risen slightly in four of the last five months, a trend that often precedes recessions. While layoffs remain low, hiring has ground to a near standstill, particularly in some white-collar jobs, making the hiring process unusually difficult for many.

A retail sales report released on Tuesday showed that U.S. spending was stable overall, but spending in some discretionary categories, such as restaurant spending, was significantly weaker.

The Federal Reserve uses the federal funds rate as its primary tool to regulate inflation and unemployment. A higher rate is used to offset price growth, while a lower rate is designed to stimulate demand and boost employment.

The central bank began raising interest rates aggressively in 2022 in response to the rapid increase in inflation caused by the Covid-19 pandemic.