The Federal Reserve said Wednesday it was lowering its key interest rate by half a percentage point, an unusually aggressive move designed to cushion the economy from a further slowdown.

In announcing the rate cut, the central bank noted job gains had slowed, while inflation had made further progress toward its 2% goal.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in its announcement. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

In a follow-up press conference, Fed Chair Jay Powell said the labor market, and the economy in general, remain in “solid shape.”

But by making the larger cut, he said, “our intention is to keep it there.”

The federal funds rate, which acts as a benchmark for borrowing rates in the rest of the economy, will now move down to about 4.8%, the lowest level since March 2023.

The central bank also said it expects further cuts at its final two meetings of the year.

Markets reacted positively, with the Dow Jones Industrial Average and the S&P 500 stock indexes both hitting fresh all-time highs in Wednesday afternoon trading.

Wall Street traders had greatly increased the odds of a half-point cut, as opposed to a more standard quarter-point one, in advance of the announcement.

Still, the larger size took many analysts by surprise.

“The Fed’s decision to go big is a unique move in history,” Seema Shah, chief global strategist at Principal Asset Management, said in a note to clients Wednesday afternoon.

She continued: “Markets can and should only celebrate today’s move — and will continue to celebrate over coming months,” she wrote. “We have a Fed that will go to historic lengths to avoid a hard landing. Recession, what recession?

Brian Coulton, Fitch Rating’s chief economist, said the cut “suggests an abrupt switch of focus back to the maximum employment mandate and a very sharp improvement in confidence in inflation progress in the last month and a half.”

He said the Fed “may be more concerned than most about the state of the labor market,” despite a seemingly steady pace of payroll growth.

Lately, the economy has continued to send mixed signals. The unemployment rate, at 4.2%, remains historically low — but it has inched up in four of the last five months, a trend that has often preceded recessions. While layoffs remain low, hiring has virtually ground to a halt, especially in some white-collar professions, making the job search process unusually difficult for many.

A retail sales report on Tuesday showed a steady pace of spending in the U.S. overall, but with some discretionary categories, like restaurant spending, significantly weaker.

The Federal Reserve uses the federal funds rate as its main tool for regulating inflation and unemployment. A higher rate is used to offset price growth, while a lower rate is designed to encourage demand and boost hiring.

The central bank began raising rates aggressively in 2022 in response to a rapid increase in the pace of inflation amid the Covid-19 pandemic.

Although a cut is almost certain to happen based on what the central bank has been signaling over the last several weeks, it remained unclear whether the Fed will enact a quarter-point or a half-point reduction. A half-point was seen by some as needed to ward off a recession, while others said it would indicate a surprise that implies economic weaknesses that the market has been missing.

In a note to clients in advance of Wednesday’s Fed statement, Bank of America economists said that while there was a case to be made for 0.5% based on weakening data, the “base case” — meaning the most likely scenario — was for the economy to experience a “soft landing” of relatively low unemployment and relatively low inflation, but with concerns about ongoing deterioration lingering.

“The main message from the meeting should be one of cautious optimism despite downside risks,” they wrote.

Others said the Fed’s timetable for additional cuts would ultimately be more relevant than the cut announced Wednesday. The central bank has historically preferred to move gradually — usually in 0.25% increments — unless it is faced with an emergency. But a plurality of market participants currently believe the Fed will need to come down by at least 1.5% over its next four meetings based on current economic conditions.

That would entail a cut of at least a half-point at some point by the time the Fed announces its interest rate in January.

Jay Bryson, chief economist at Wells Fargo, currently sees an approximately 1-in-3 chance of a recession, based on rising delinquencies and a savings rate that indicates consumers are spending more than they’d like to keep up with inflation.

“We’re seeing some cracks in the economy,” he told NBC News.

The Fed believes Wednesday’s anticipated cut, and ones likely coming over the next several months, should put a floor under further economic deterioration.

However, it is not clear how quickly consumers and businesses can, or will, take advantage of lower rates if they sense that overall demand in the economy is on the decline.

Some economic observers say there is no sign of that occurring.

“Layoffs remain low, job openings remain high, GDP is growing at a healthy pace, and there have not been any major negative shocks,” David Mericle, Goldman Sachs’ chief U.S. economist, said in a note to clients.

But not all share this view.

Economists with Citi financial group believe a more significant downturn is in the offing, pointing to surveys that show the largest share of small businesses expecting earnings to decline since 2010, with hiring expected to remain subdued. They also note home-buying and construction activity has not increased despite recent declines in mortgage rates, something they say reflects weaker demand.

“Firms have slowed hiring to reduce labor costs,” the Citi economists wrote. “As hiring slows broadly workers will be less likely to leave their current job and firms will be forced to begin active reductions.”