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

The rate cut, the Fed’s first in more than four years, reflects a renewed focus on bolstering the labor market, which has shown clear signs of slowing. The Fed’s move, coming just weeks before the presidential election, also could shake up the economic landscape just as Americans prepare to vote.

Watch Jerome Powell’s comments in the player above.

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

Fed policymakers also signaled they expect to cut their key interest rate by an additional half point at their last two meetings this year, in November and December. And they anticipate four more rate cuts in 2025 and two more in 2026.

To lookH: Chicago Fed President Expects Multiple Rate Cuts Amid Economic ‘Overcooling’

In a statement and during a press conference with Chairman Jerome Powell, the Fed came closer than ever before to declaring victory over inflation.

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

“The US economy is in good shape,” he added, “and our decision today is aimed at keeping it that way.”

While the central bank now believes inflation has largely been defeated, many Americans are still angry about the still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for creating a wave of inflation. Vice President Kamala Harris, for her part, has argued that Trump’s promise to slap tariffs on all imports would further increase prices for consumers.

The Fed’s rate cuts should eventually lead to lower borrowing costs on mortgages, auto loans and credit cards, boosting Americans’ finances and supporting more spending and growth. Homeowners can refinance mortgages to lower rates, save on monthly payments and even shift credit card debt to cheaper personal loans or home equity lines. Businesses can also borrow and invest more. The average mortgage rate has already fallen to an 18-month low of 6.2 percent, according to Freddie Mac, fueling a jump in demand for refinancing.

“It’s a step in the right direction,” Laura Rosner-Warburton, chief economist at MarcoPolicy Perspectives, said of the Fed’s move on Wednesday.

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

In an updated set of forecasts, policymakers collectively see inflation falling faster than three months ago, but also higher unemployment. They see their favorite inflation gauge falling to 2.3 percent by the end of the year, from 2.5 percent now, and to 2.1 percent by the end of 2025. And they now expect the unemployment rate to rise further this year, from 4.2 percent now to 4.4 percent, and to remain there through the end of 2025. That’s above their previous forecasts of 4 percent for the end of this year and 4.2 percent for 2025.

Powell was asked during his press conference whether the Fed’s decision to cut its key interest rate by an unusually large half point was an admission that the Fed waited too long to cut lending 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 to not being behind. We’re not seeing rising (unemployment) claims, rising layoffs, and not hearing from companies that that’s something that’s going to happen.”

He added: “The thinking is that the time to support the labour market is when it is strong and not when you start to see layoffs. We do not think we need further easing of labour market conditions to bring inflation back to 2 per cent.”

The Fed’s next policy meeting is Nov. 6-7, right after the presidential election. By cutting rates this week, right before the election, the Fed risks attack from Trump, who has argued that cutting rates now amounts to political interference. Yet, Politico reported that even several key Senate Republicans interviewed expressed support for the Fed to cut rates this week.

Powell pushed back against suggestions that the Fed should not cut rates so close to the election.

“We don’t serve any politician, political figure, cause or issue,” he said. “It’s just about maximum employment and price stability on behalf of all Americans. And that’s the way all other central banks are set up. It’s a good institutional arrangement, and it’s been good for the public, and I hope and believe very strongly that it will continue to be good.”

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

The Fed’s move on Wednesday reverses the inflation-fighting effort it launched by raising its key interest rate 11 times in 2022 and 2023. Wage growth has slowed since then, 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 resisting high prices, forcing companies like Target and McDonald’s to offer deals and discounts.

The Fed’s decision drew the first dissent from a board member since 2005. Michelle Bowman, a board member who has previously expressed concern that inflation was not fully under control, said she would have favored a quarter-percentage-point rate cut.

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

At the same time, officials and many economists have noted that the rise in unemployment this time around is largely the result of an influx of people looking for work — particularly new immigrants and recent college graduates — rather than layoffs.

The Fed’s focus now is on “preserving the health of the labor market and avoiding unnecessary damage to the economy through fairly restrictive (interest rate) policy,” 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.