The US Federal Reserve on Wednesday reduced the key policy rate in the world’s largest economy by 25 basis points (bps), but hinted of lesser cuts next year, causing US stocks to fall sharply and Dow going down by 1,100 points.

The benchmark policy rate in the US is now between 4.25% to 4.50%.

The US central bank has made a total of three rate reductions this year. Reports showed that 11 members of the Federal Open Market Committee (FOMC) voted in favor of reducing the key interest rate, while Beth M. Hammack, saw the need for a pause.

US Fed Chairman Jerome Powell said they are going to be cautious on further rate reductions next year, or possibly to only two.

“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,” Powell said at a press conference after the central bank’s policy-setting FOMC meeting.

He added that the 25 bps rate reduction was based on the high inflation figures in the US this year, and possibly higher inflation rates in 2025. Headline inflation in the US increased up for the second consecutive month to 2.7% in November.

“I think that a slower pace of (rate) cuts really reflects both the higher inflation readings we’ve had this year and the expectations that inflation will be higher” in 2025, Powell said.

“We’re closer to the neutral rate, which is another reason to be cautious about further moves,” he added.

PHOTO FROM YONHAP