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The US Federal Reserve reduced interest rates by half a percentage point on Wednesday, marking the beginning of what is expected to be a steady easing of monetary policy. This larger-than-usual rate cut follows growing concerns about the strength of the labor market.

"The committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and believes the risks to achieving its employment and inflation goals are now balanced," stated the Fed's rate-setting committee. However, the decision saw opposition from Governor Michelle Bowman, who preferred a smaller quarter-point cut.

Projections suggest the Fed's benchmark rate will fall by another half a percentage point by the end of this year, a full percentage point in 2025, and a final half-point in 2026, ending in the 2.75 to 3.00 percent range. This reflects a slight upward revision in the longer-run federal funds rate, now estimated at 2.9 percent, seen as a neutral stance that neither spurs nor restrains economic activity.

Despite inflation still being "somewhat elevated," the Fed reduced the overnight rate to 4.75 to 5.00 percent, citing progress on inflation and balanced risks. The central bank emphasized its readiness to adjust policy if needed to ensure stable prices and maximum employment.

Fed Chair Jerome Powell will address the policy decision and the economic outlook during a press conference later. This rate cut, coming just before the US presidential election, raises questions about whether the Fed is responding to rapidly falling inflation or concerns about a potential weakening in the job market.

Currently, inflation remains about half a percentage point above target. However, projections show it falling to 2.3 percent by the end of this year and 2.1 percent by 2025. The unemployment rate, expected to end the year at 4.4 percent, will likely remain there through 2025. Economic growth forecasts hold steady at 2.1 percent for 2024 and 2 percent for 2025.