US Fed cuts key rate, remains cautious over economic outlook next year

The US Federal Reserve (Fed) has cut its benchmark policy rate by a quarter point and signalled a slower pace of cuts ahead, amid uncertainty about inflation and President-elect Donald Trump's economic plans.

Policymakers on Wednesday voted 11-to-1 to lower the US central bank's key lending rate to between 4.25 percent and 4.50 percent, the Fed announced in a statement.

In updated economic forecasts, members of the Fed's rate-setting committee pencilled in just two quarter-point rate cuts in 2025, down from an earlier prediction of four, and hiked their inflation outlook for next year, from 2.1 to 2.5 percent.

The Fed has made progress in tackling inflation through interest rate hikes in the last two years and recently began paring back rates to boost demand in the economy and support the labour market.

But in the last couple of months, the Fed's favoured inflation measure has ticked higher, moving away from the bank's long-term target of two percent, and raising concerns that the US central bank's battle is not over.

This is the final planned interest rate decision before outgoing Democratic President Joe Biden makes way for Republican Donald Trump, whose economic proposals include tariff hikes and the mass deportation of millions of undocumented workers.

These plans, combined with the recent uptick in inflation data, led some analysts to pare back the number of rate cuts they expect in 2025 ahead of Wednesday's meeting, predicting that interest rates will need to remain higher for longer.