The US Federal Reserve on Wednesday lowered its benchmark interest rate by a quarter-percentage point and signaled the possibility of two reductions next year, two fewer than what it penciled in three months ago.

After the two-day Federal Open Market Committee meeting, the central bank announced the decision to reduce the rate to the 4.25 to 4.50 percent range. It followed a quarter-percentage-point cut last month and a 50-basis-point reduction in September.

FOMC members' new median economic projections showed that the federal funds rate would be cut to 3.9 percent at the end of next year, up from the September projection of 3.4 percent. The latest forecast signaled two more rate reductions next year.

The median projections also indicated that Personal Consumption Expenditures inflation may reach 2.5 percent at the end of next year, higher than the September projection of 2.1 percent.

"I think that the slower pace of cuts for next year really reflects with the higher inflation readings we've had this year, and the expectation inflation will be higher," Fed Chair Jerome Powell told a press conference.

"You saw in the SEP that risks and uncertainty around inflation we see as higher," he added, referring to the summary of economic projections.

He went on to say, "Nonetheless, we see ourselves as still on track to continue to cut. I think the actual cuts that we make next year will not be because of anything we wrote down today."

This week's Fed rate cut put the gap between the key rates of South Korea and the United States at up to 1.5 percentage points. (Yonhap)