The US Federal Reserve cut its benchmark interest rate by a quarter percentage point on Wednesday to a target range of 3.75% to 4.00%, signalling a slower pace of easing than markets had anticipated. The decision followed a two-day meeting of the Federal Open Market Committee in Washington.

Chair Jerome Powell said at his afternoon press conference that the committee remained concerned about inflation persistence after consumer prices rose to 3.4% in August, driven by an energy surge tied to Gulf tensions. He described the cut as a "risk-management" move rather than the start of an aggressive easing cycle.

The updated Summary of Economic Projections, or dot plot, showed the median policymaker now expects just one further quarter-point cut before the end of 2026, down from earlier signals of two. The projections revealed a sharp split, with several officials, including Governor Kevin Warsh, favouring no additional cuts given renewed price pressures.

Equity markets, which had rallied on hopes of a dovish outlook, pared gains after the release. The S&P 500 and Nasdaq slipped from session highs while Treasury yields on the two-year note rose as traders repriced the path of future cuts. The dollar strengthened against the euro and yen.

Powell declined to commit to action at the October meeting, saying decisions would remain "data-dependent" and that the committee would watch closely whether the energy-driven inflation spike proved temporary. "We are prepared to hold rates steady if the disinflation process stalls," Powell told reporters. "We will not declare victory prematurely."