02:59 PM EST, 12/18/2024 (MT Newswires) -- (Updates with the FOMC's Summary of Economic Projections and comments from TD.)

The Federal Reserve on Wednesday reduced its benchmark lending rate by 25 basis points and flagged fewer cuts ahead than projected in September.

The Federal Open Market Committee reduced interest rates to a range of 4.25% to 4.50% from 4.50% to 4.75%, in line with Wall Street's expectations. Policymakers cut rates by 50 basis points in September and by 25 basis points last month.

The FOMC on Wednesday reiterated that although inflation has made progress toward its 2% target, it remains "somewhat" elevated. Economic activity has continued to expand at a "solid" rate, while labor market conditions have "generally eased" since earlier in the year, the committee said in a statement following its two-day meeting. The unemployment rate has edged higher but remains low.

"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the FOMC said.

Official US data released last week showed that monthly consumer inflation accelerated in line with market estimates in November, while producer prices rose more than expected.

The FOMC's updated Summary of Economic Projections showed Wednesday that members raised their median federal funds rate outlook for 2025 to 3.9% from 3.4% projected in September. The rate projection was increased to 3.4% from 2.9% for 2026 and to 3.1% from 2.9% for 2027.

Members raised their longer-run median rate outlook to 3% from 2.9%.

"While we don't think investors should rule out a January cut completely, with the Fed's preferred inflation rate stuck at 2.8% year-on-year, and expectations that (President-elect Donald Trump) will follow through on his inflationary political strategy, it makes sense that the Fed will be much more cautious come the New Year," TD Economics Senior Economist James Orlando said in a report.

Policymakers raised their projection for inflation, as measured by personal consumption expenditures, to 2.4% from 2.3% this year and to 2.5% from 2.1% for 2025. Core PCE inflation, which excludes the volatile food and energy components, is now seen at 2.8% in 2024, up from the 2.6% forecast in September, while the 2025 rate is pegged at 2.5% versus 2.2%. The 2026 outlooks for both components were increased.

Policymakers reduced their unemployment rate expectation to 4.2% from 4.4% for 2024 and to 4.3% from 4.4% for 2025. Members raised their US economic growth outlook to 2.5% from 2% for this year and to 2.1% from 2% for 2025, the document showed.

The next FOMC meeting is scheduled for Jan. 28-29.