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The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point but signaled a slower pace of easing next year, sending the dollar higher and US stocks lower.

The Federal Open Market Committee voted Wednesday to reduce federal funding rate to 4.25-4.5 percent, its third cut in a row. The decision was not unanimous, with Cleveland Fed president Beth Hammack casting a dissenting vote, with a preference for keeping rates steady.

Officials’ economic projections released alongside the rate decision pointed to a smaller decline than previously forecast for 2025, underscoring concerns among lawmakers that cutting borrowing costs too soon could weaken the efforts to cool price growth across the world’s largest economy.

The US dollar fell sharply after the decision, with government bond yields also rising and Wall Street stocks sliding.

The Fed’s goal is to apply enough pressure on consumer demand and business activity to push inflation back to the US central bank’s 2 percent target without harming the job market or the economy more broadly.

Officials now expect to cut the benchmark rate by half a percentage point next year to 3.75-4 percent, down from the full percentage point cut predicted in September’s “dot plot.” Four officials have written one or no additional cuts next year.

Most see the policy rate falling to 3.25-3.5 percent by the end of 2026, also higher than the forecast from three months before.

They also raised their forecasts for inflation once food and energy prices hit 2.5 percent and 2.2 percent in 2025 and 2026, respectively, while they forecast the unemployment rate to remain at 4.3 percent next year. which is three years.

US government bonds came under immediate selling pressure after the Fed’s decision, with the policy-sensitive two-year Treasury yield up 0.07 percentage points to 4.31 percent – reversing a small drop earlier in the session.

In currency markets, the dollar jumped 0.7 percent against a basket of six peers. Wall Street’s S&P 500 share index fell 0.5 percent.

In a sign that the Fed is preparing to skip rate cuts in future meetings, the FOMC amended its language about future changes in its policy settings in a statement on Wednesday.

“In considering the size and timing of further adjustments to the target range for the federal funds rate, the committee will carefully assess future data, the evolving outlook, and the balance of risks ,” it said.

Wednesday’s decision is not the first this year that a Fed official has opposed, after Michelle Bowman rejected a half-point rate cut in September. It was the first time the governor voted against a decision since 2005.

Wednesday’s quarter-point cut was widely expected in financial markets, but came amid a debate among officials over how fast inflation should recede, after recent data suggested progress to 2 percent target slowed. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge that strips out food and energy prices, rose at an annual rate of 2.8 percent in October.

the feeding began a new rate-cutting cycle in September with a bumper half-point cut, but fears about the labor market have ebbed since then and the economic outlook has brightened. That healthy state of the US economy changes the calculation for officials as they try to settle on a “neutral” rate that doesn’t stifle growth or push it too high.

The central bank described the recent cuts as a “recalibration” of policy that reflects its success in knocking inflation down from a peak of around 7 percent in 2022. But the bar for future rate cuts is set which will move higher over time as the policy rate approaches neutral estimates, especially if the economy maintains its strength

Fed officials have once again raised their estimates of the longer-term neutral rate, with most now putting it at 3 percent. This time last year, they measured 2.5 percent.

The Fed meeting came just weeks before Donald Trump returned to the White House, promising to raise tariffs, deport immigrants and cut taxes and regulations. Economists recently survey via the Financial Times says the policy mix could spark a new battle for higher inflation and hit growth.

Fed officials say they have not factored Trump’s potential policy changes into their economic and rate forecasts.

Additional reporting by Harriet Clarfelt in New York