(Reuters) - The Federal Reserve cut interest rates by half of a percentage point on Wednesday, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market.

Policymakers see the Fed's benchmark rate falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75%-3.00% range.

MARKET REACTION:

STOCKS: The S&P 500 rose 0.5% after the news

BONDS: The yield on benchmark U.S. 10-year notes fell at 3.653%. The 2-year note yield fell to 3.552%

FOREX: The dollar index fell 0.6% with the euro up 0.58%. Both were about flat before the announcement.

COMMENTS:

RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA

"The Fed didn't rock the boat too much, 50 bps was expected. The reality is the Fed understands the slowing of the labor market is the big worry. This 50-basis point cut is the Fed acknowledging that inflation isn't a major problem anymore. And now they can focus on the weakening labor market."

"All in all, the market wanted to hear a dovish tone from the Fed and this 50 basis point cut, along with the somewhat dovish statement is exactly what the market was looking for."

"They upped their unemployment rate target again, acknowledging some the softening we've seen in the labor market."

"But when you look at the dot plot, 50 basis points of cuts this year with another 100 basis points next year. That's the Fed saying we are moving our main objective to helping slowing labor market and these cuts should be able to do that."

"To see the jump in small caps specifically, that's the market buying what the Fed is saying, that they will continue to cut rates next year and that's a potential tailwind to small caps. They are very sensitive to interest rates."

"We're looking for a dovish tone from Powell more color on inflation. And the weakening or softening of the labor market. Those are some things we're we have our eyes on."

VASSILI SEREBRIAKOV, FX & MACRO STRATEGIST, UBS, NEW YORK

"In the days and weeks in the run up to the decision, the focus has been on whether the Fed's will cut by 25 or 50 basis points. The market was fairly split on that, with markets rates pricing a slightly higher probability of a 50-basis point cut, but not a full 50-basis point move. I think the initial reaction is, it's a more dovish cut. It certainly wasn't a hawkish cut."

THOMAS MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA, GA

"It seems to me that they want to really show that they are that they're relevant and that they are kind of in control. They certainly have room to do that because there's still a lot more room to cut rates after this."

"They're cutting when the economy is still showing signs of a fair amount of strength. And it's most likely because the inflation fight is seems to be in the bag"

"It did surprise me, but I knew that it was going to be a tough call, and the markets were 50/50"

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

    "I was expecting a 25 basis point cut. I thought they would go gradual, but they were more generous than I expected them to be. The big surprise here is that they've indicated further cuts, possibly another 50 bps by year end.

    "The Fed move was dovish. I guess their biggest fear is that the labor market is getting overly weak, and that I think is the reason why they did it.

    "The initial reaction in the markets is positive. But what we're seeing in the market right now could change over the next couple of days as investors begin to worry about the economy."

TOM HERRICK, CHIEF MARKET STRATEGIST, CARY STREET PARTNERS, RICHMOND VA

"The starting point is a very restrictive place. To go down 50 when you have both PCE and CPI annualized below target, there's a ton of room to go lower here, combined with what I would call wobbly labor data, wobbly not terrifying. They're making more progress than some had thought right away. It's unusual for a 50 bp move. Typically when you see 50 to the downside it's 2007, it's the economy-falling-to-pieces sort of thing, that's not our situation right now. Remember two years ago we were getting 75 to the upside, and that's because they were so far behind. This is somewhat the same they're a little behind but really your starting point is so restrictive.... There's a lot of room to go lower so they took a big bite to start."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

"The Fed ended the pause with a bang. It's a strong signal that they cut by 50 bps and expect another 50 basis points of cuts this year. This was controversial. Powell has the lowest number of dissents for decisions since the 1950s. The last time there was a dissent was in June 2022 when George wanted them to slow down the hikes. This time the dissent was because they wanted a slower pace of cuts. The Fed is projecting that by front loading the cuts they can stick the landing with the unemployment rate at 4.4% and inflation dropping to target quickly."

ERIC ORENSTEIN, SENIOR DIRECTOR, FITCH RATINGS, NEW YORK (in email)

"The Fed's 50bp rate cut likely adds downward momentum for mortgage rates, which have already come down materially since May as treasuries have rallied. While not enough for a full scale refi boom, an average 30-year rate approaching 6% does open up a meaningful slice of the market for refinancing. Mortgage originators stand to benefit, and will likely find the toughest times already behind them."

MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO  (in email)

"Today's reduction in interest rates could ultimately allow for consumers to see lower monthly payments. It also may allow for many consumers to consider refinancing higher interest debt into a lower interest credit product such as a personal loan or home equity loan.

In recent months, lenders have begun exercising more discretion when it comes to whom they are extending credit, preferring less risky borrowers. It remains to be seen whether this interest rate reduction will see lenders once again offering credit to a larger segment of the consumer population, but it could help in that regard."

(Compiled by the Global Finance & Markets Breaking News team)