The widely expected cut is bigger than many analysts had predicted just a week ago, and officials signalled that further cuts were likely to follow before the end of the year.
The Fed raised interest rates sharply in 2022, aiming to cool the economy and stabilise prices, which were then surging at the fastest pace since the 1980s.
But officials have gained confidence that inflation, the rate at which prices rise, is now headed back toward their 2% target.
Meanwhile, officials have become more concerned about the labour market, with the unemployment rate having climbed to 4.2% from 3.7% at the start of the year.
Projections released after the meeting showed officials now see inflation falling faster and unemployment rising higher than they did a few months ago.
Unemployment is forecast to hit 4.4% by the end of the 2024.
Federal Reserve chair Jerome Powell conceded that Wednesday’s cut was a “strong” move, but said it was meant to preserve progress rather than signal significant worries about the economy.
“The labour market is in a strong place – we want to keep it there,” Mr Powell said. “That’s what we’re doing.”
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