Futures on the federal funds rate, which measure the cost of unsecured overnight loans between banks, priced in Wednesday the Federal Reserve will hold the overnight benchmark rate steady in January, after it lowered rates by 25 basis points at the end of its two-day meeting.

Rate futures also factored in about 33 bps in cuts in 2025, down from 49 bps immediately after the Fed statement, LSEG calculations showed.

The Fed on Wednesday also released new estimates on rate forecasts, also known as the "dot plot," which called for two quarter-point rate cuts next year. That mirrored what the futures market has been showing over the last two weeks.

The central bank's rate-setting Federal Open Market Committee lowered the benchmark overnight interest rate to the 4.25%-4.50% range, as widely expected. The decision, however, was opposed by Cleveland Fed President Beth Hammack, who preferred to leave the policy rate unchanged.

The Fed noted that the unemployment rate "remains low" and inflation "remains somewhat elevated." Slower progress on inflation, which is not seen returning to the 2% target until 2027, translates into a slower pace of rate cuts and a marginally higher terminal rate of 3.1%, also to be hit in 2027, versus the prior rate of 2.9% seen as of September.

"The Summary of Economic Projections is markedly hawkish, with only two projected rate cuts for 2025, signaling deeper concerns over persistent or re-igniting inflation," said Dan Siluk, portfolio manager and head of global short duration & liquidity and Portfolio Manager at Janus Henderson Investors, in emailed comments.

"The Fed seems to have switched back to prioritizing inflation risks over unemployment, readying for a January skip and potentially an extended pause in 2025, if inflationary pressures persist and the economy remains robust."