The US central bank has lowered interest rates for the first time in more than four years, with a larger-than-usual cut.
The Federal Reserve reduced the target for its key lending rate by 0.5 percentage points to 4.75%-5%.
The US unemployment rate has climbed to 4.2% from 3.7% at the start of the year as hiring slowed.
Projections released after the meeting showed officials now see inflation falling faster and unemployment rising higher than they did in June, with the jobless rate expected to hit 4.4% by the end of 2024.
Jerome Powell, the head of the bank, said the move was “strong” but that it was needed as price rises ease and job market concerns grow.
It will be a relief to US borrowers, who have been dealing with the highest interest rates in more than two decades.
Wednesday’s cut was larger than many analysts had predicted just a week ago, and the bank’s forecast signaled that rates could fall another half percentage point by the end of the year.
Federal Reserve chair Jerome Powell said the aggressive action on Wednesday was intended to make sure that high borrowing costs, put in place to fight inflation, would not end up hurting the US economy.
“The labor market is in a strong place – we want to keep it there,” Mr Powell said. “That’s what we’re doing.”
But ahead of the meeting, there was unusual uncertainty about how large a cut officials would approve.
Over the three months to June, the US economy grew at an annual rate of 3%, the most recent Commerce Department figures show. Retail spending has also remained resilient.
Inflation, meanwhile, dropped to 2.5% in August, moving closer to the Fed’s 2% target for the fifth month in a row.
Historically the bank has announced interest rate cuts of 0.5 percentage points at moments of crisis such as the onset of the coronavirus pandemic or the 2008 financial crash.
