By CHRISTOPHER RUGABER AP Economics Writer

WASHINGTON (AP) — The Federal Reserve cut its key interest rate Wednesday by a quarter-point — its third cut this year — but also signaled that it expects to reduce rates more slowly next year than it previously envisioned, largely because of still-elevated inflation.

The Fed’s 19 policymakers projected that they will cut their benchmark rate by a quarter-point just twice in 2025, down from their previous estimate in September of four rate cuts. Their new quarterly projections suggest that consumers may not enjoy much lower rates next year for mortgages, auto loans, credit cards and other forms of borrowing.

Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as “neutral” — the level that is thought to neither spur nor hinder the economy. Wednesday’s projections suggest that policymakers may think they are not very far from that level. Their benchmark rate stands at 4.3% after Wednesday’s move, which followed a steep half-point reduction in September and quarter-point cut last month.

Beth Hammack, president of the Fed’s Cleveland branch, dissented from the decision because she preferred to keep rates unchanged. It was the first dissent by a Fed committee member since September.

This year’s Fed rate reductions have marked a reversal after more than two years of high rates, which largely helped tame inflation but also made borrowing painfully expensive for American consumers.

But now, the Fed is facing a variety of challenges as it seeks to complete a “soft landing” for the economy, whereby high rates manage to curb inflation without causing a recession. Chief among them is that inflation remains sticky: According to the Fed’s preferred gauge, annual inflation was 2.8% in October, the same as in March and still persistently above the central bank’s 2% target.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

WASHINGTON (AP) — Federal Reserve officials on Wednesday will likely signal a slower pace of interest rate cuts next year compared with the past few months, which would mean that Americans might enjoy only slight relief from still-high borrowing costs for mortgages, auto loans and credit cards.

The Fed is set to announce a quarter-point cut to its benchmark rate, from about 4.6% to roughly 4.3%. The latest move would follow a larger-than-usual half-point rate cut in September and a quarter-point reduction in November.

Wednesday’s meeting, though, could mark a shift to a new phase in the Fed’s policies: Instead of a rate cut at each meeting, the Fed is more likely to cut at every other meeting — at most. The central bank’s policymakers may signal that they expect to reduce their key rate just two or three times in 2025, rather than the four rate cuts they had envisioned three months ago.

So far, the Fed has explained its moves by describing them as a “recalibration” of the ultra-high rates that were intended to tame inflation, which reached a four-decade high in 2022. With inflation now much lower — at 2.3% in October, according to the Fed’s preferred gauge, down from a peak of 7.2% in June 2022 — many Fed officials argue that interest rates don’t need to be so high.

But inflation has remained stuck above the Fed’s 2% target in recent months while the economy has continued to grow briskly. On Tuesday, the government’s monthly report on retail sales showed that Americans, particularly those with higher incomes, are still willing to spend freely. To some analysts, those trends raise the risk that further rate cuts could deliver an excessively strong boost to the economy and, in doing so, keep inflation elevated.

On top of that, President-elect Donald Trump has proposed a range of tax cuts — on Social Security benefits, tipped income and overtime income — as well as a scaling-back of regulations. Collectively, these moves could stimulate growth. At the same time, Trump has threatened to impose a variety of tariffs and to seek mass deportations of migrants, which could accelerate inflation.

Chair Jerome Powell and other Fed officials have said they won’t be able to assess how Trump’s policies might affect the economy or their own rate decisions until more details are made available and it becomes clearer how likely it is that the president-elect’s proposals will actually be enacted. Until then, the outcome of the presidential election has mostly heightened the uncertainty surrounding the economy.

Either way, it appears unlikely that Americans will enjoy much lower borrowing costs anytime soon. The average 30-year mortgage rate was 6.6% last week, according to mortgage giant Freddie Mac, below the peak of 7.8% reached in October 2023. But the roughly 3% mortgage rates that existed for nearly a decade before the pandemic aren’t going to return in the foreseeable future.

Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as “neutral” — the level that neither spurs nor hinders the economy.

“Growth is definitely stronger than we thought, and inflation is coming in a little higher,” Powell said recently. “So the good news is, we can afford to be a little more cautious as we try to find neutral.”

Most other central banks around the world are also cutting their benchmark rates. Last week, the European Central Bank lowered its key rate for the fourth time this year to 3% from 3.25%, as inflation in the 20 countries that use the euro has fallen to 2.3% from a peak of 10.6% in late 2022.