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The Federal Reserve on Wednesday cut interest rates by half a percentage point, the first drop since 2020 (The Wall Street Journal, subscription).

What’s going on: “Eleven of 12 Fed voters backed the cut, which brings the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter-point each at meetings in November and December.”

• The move is reflective of a new phase in the central bank’s inflation fight: “trying to prevent past rate increases, which last year took borrowing costs to a two-decade high, from further weakening the U.S. labor market.”
• Wednesday’s decision marks only the sixth time in the past three decades that the Fed has gone from raising to lowering interest rates.

What it should do: The rate cut is likely to give some quick relief to small businesses with variable-rate debt and consumers with credit card debt.

• “On the other hand, modest rate cuts might be of little help to corporate borrowers who locked in much lower fixed borrowing costs before 2022 and who need to refinance over the next year at rates that could still be high, even as the Fed dials rates down.”

What it means: The “cut suggests the Fed is worried about the labor market,” Dean Maki, chief economist at hedge fund Point72 Asset Management, told the Journal.

• Indeed, the unemployment rate was at 4.2% last month, an increase from January’s 3.7%.

Dissent: The lone dissenter in the decision was Fed Gov. Michelle Bowman, who was in favor of a smaller, quarter-point decrease. She is the first governor to dissent against an interest-rate decision since 2005.

What’s next: “Bond investors are anticipating another 2 percentage points in rate cuts over the next [one-and-a-half] years, while stock valuations suggest investors see healthy earnings growth over the next year.”