The Federal Reserve lowered its key interest rate by a hefty half percentage point Wednesday, moving ahead with its first rate cut in four years.

“The (Fed) has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement after a two-day meeting. “The economic outlook is uncertain, and the Fed is attentive to the risks of both sides of its dual mandate.”

What is the new Fed interest rates?

Prior to the midweek decision from the Federal Open Market Committee, the interest rate was at a 23-year high of 5.25% to 5.5%. Now, its benchmark ranges from 4.75% to 5%.

Policymakers also have forecasted four more quarter-point cuts in 2025 an additional two quarter-points in 2026, reducing the key rate to about 2.9% by the end of 2026, USA TODAY reported.

When does the interest rate cut take effect?

When the Federal Reserve changes interest rates, the new rate typically takes effect immediately after the announcement. However, the practical impact on financial markets and institutions might take a few days to fully materialize.

Fed’s rate changes influence short-term interest rates, and banks and other financial institutions adjust their rates accordingly, which can vary in timing.

How will this interest rate cut impact US residents?

The Federal Reserve's decision to cut interest rates will impact U.S. residents in several ways.

• Cheaper borrowing: The rate cut will lower borrowing costs for those looking to finance a home or auto purchase. Mortgage and auto loan rates are expected to decrease, making it easier and more affordable for consumers to take on these loans.

• Credit card debt: For those carrying high-interest credit card debt, the rate cut could bring some relief by reducing the interest rates on revolving credit, potentially lowering monthly payments.

• Savings impact: On the flip side, savers might see lower returns on savings accounts, CDs, and other interest-bearing accounts. The higher yields recently enjoyed by savers may drop as banks adjust to the lower rates.

• Future reductions: This cut is expected to be the first in a series of reductions through the remainder of the year and into 2025.

However, it also will trim bank savings account yields that finally have provided significant returns.

How high will inflation be in 2025?

Fed officials estimated Wednesday their preferred measure of annual inflation, the personal consumption expenditures index, will fall from 2.5% to 2.3% by December, below the 2.6% they predicted in July, according to USA TODAY. Then, it’s projected to drop to 2.2% by the end of next year.