US Fed lowers rates but signals caution amid inflation uncertainty

The US Federal Reserve cut interest rates by a quarter of a percentage point on Dec 18 but signaled a slower pace of cuts ahead, as uncertainty grows over inflation and US President-elect Donald Trump's economic plans.

In updated economic forecasts published alongside the rate decision, members of the Fed's rate-setting committee penciled in just two quarter-point rate cuts in 2025, down from an earlier prediction of four.

They hiked their headline inflation outlook for 2025 from 2.1 percent to 2.5 percent – well above the US central bank's 2 percent target.

Fed chairman Jerome Powell's explicit – and repeated – references to the need for caution on rate cuts jolted Wall Street, sending US stocks sharply lower and the US dollar rallying.

"I think we're in a good place, but I think from here it's a new phase and we're going to be cautious about further cuts," Mr Powell said at a press conference following the end of the Fed's latest two-day policy meeting.

The Fed and Mr Powell had been widely expected to deliver a "hawkish" rate cut by estimating roughly half the policy easing in 2025 than the 100 basis points policymakers had projected three months ago. But by the time Mr Powell had finished speaking, only one 25 basis-point cut for 2025 was reflected in market pricing.