The Federal Reserve went big with its first interest rate cut since March of 2020.

The Fed announced a half-point cut in the federal funds rate, dropping to 4.875%, down from a 23-year high of 5.50%.

While a rate cut had been expected, it was deeper than the typical quarter-point change and seen as an effort to cushion the economy from a further slowdown as job gains have slowed and raging inflation has simmered.

Fed Chair Jerome Powell said the aggressive cut doesn’t mean more cuts are coming, but was necessary to support growth.

“Our intent with our policy move today is to keep it there," he said. "The time to support the labor market is while it's strong, not when you start seeing layoffs ... You can take this as a sign of our commitment not to get behind."

What causes federal funds rate to go up or down?

The Fed raises rates to curb borrowing and economic activity to bring down inflation.

In 2022, inflation reached it's highest rate of 9.1% mid-year, since 1981 and has since, very slowly decreased to around 3%; the goal is 2 percent.

Thirty-year mortgage rates jumped up from historic lows of 2.65% in 2021 to near 8% by end of 2023. Today's rate according to Bankrate is approximately 6.17%.

The Fed lowers rates to stimulate the economy and prevent a recession. It typically signals a slowing economy.

What does the rate cut mean for you?

A cut in the fed rate means the cost to borrow will come down, such as on credit cards, auto loans, and mortgages. It also lowers the cost of borrowing for companies or businesses, which usually boosts business growth and investment.

The fed rate is the interest rate banks charge each other to borrow money. It is not the borrowing rate for consumers. However, it has significant influence on how much banks and lenders charge people to borrow money. For example, high-value loans like car loans and mortgages typically run about 3% more than the fed rates, while credit cards and personal loans commonly are 10% or more above the fed rate.

Consumer loans rarely ever fall below the fed rate.

On the flip side, a fed-rate cut means the savings rates will decrease for bank savings and CD yields because banks are less reliant on customers’ money.

This article originally appeared on NorthJersey.com: Fed announced first interest rate cut since 2020; here's what it means