The Federal Reserve has cut interest rates for the third time, despite concerns that the move will provide a boost to the economy that could lead to a re-ignition of inflation.

The decision was expected and sets the Federal Reserve’s key interest rate at a target range of 4.25% to 4.5%.

That’s a full percentage point lower than in September, when the bank began cutting borrowing costs, citing progress in price stabilization and a desire to stave off an economic slowdown.

Since then, reports have suggested that job creation was more robust than expected, while price increases continued to bubble up.

Inflation, which measures the pace of price increases, was 2.7% in the US in November – compared to 2.6% in the previous month.

Lower interest rates stimulate economic activity by making it easier to borrow money. This can encourage companies to invest or expand and encourage households to spend money on things like cars. However, when demand increases, higher prices usually result.

Fed officials, who expect inflation to hover around 2%, have said they are aware of the risks.

Bank CEO Jerome Powell defended the cut on Wednesday, citing a slowdown in the labor market over the past two years.

But he acknowledged the move was a “closer decision” and warned that officials would be less likely to cut rates next year.

“We are in a new phase of the process,” he said at a news conference. “From this point on, it is appropriate to proceed cautiously and look for progress on inflation.”

Forecasts released by the Fed on Wednesday showed that policymakers now expect the bank’s key interest rate to fall to just 3.9% by the end of 2025, above the 3.4% forecast just three months ago.

They also expect inflation next year to remain higher than previously forecast, at around 2.5%.

John Ryding, chief economic adviser at Brean Capital, said he thought it would have been wiser for the Fed to hold off on cutting rates at this meeting, even if it risked upsetting markets expecting a cut.

“Enormous progress has been made from the peak of inflation to where the U.S. is now, and there is a risk that that progress will be abandoned, perhaps even that some of that progress will be reversed,” he said. “The economy seems strong…What’s the rush?”

The decision – which was formally rejected by a Fed policymaker – is the central bank’s last before President-elect Donald Trump takes office.

He won the election in November by promising to lower both prices and interest rates.

But analysts have warned that his policies, including plans to impose sweeping import tariffs, could jeopardize those goals.

The Fed’s announcement also comes a day before the Bank of England is set to make its latest interest rate decision in the UK Price inflation has recently increased.

The key interest rate is generally expected to remain stable at 4.75%.

Monica George Mikhail, associate economist at the National Institute of Economic and Social Research, said the Bank of England faces interest rates of Wage growth and price increases for services hotter than in the US.

Some of the government’s plans, including an increase in the minimum wage, would also put pressure on inflation, she added.

“The Bank of England is trying to remain cautious,” she said.

However, she warned that there were also risks of inflation in the US, citing Mr Trump’s tariff plans.

Mr Ryding said he thought the Bank of England – which, unlike the Fed, does not have to consider unemployment as part of its mandate – was responding more clearly to the reality of the situation it faced.

“The Bank (of England) is currently a more prudent central bank than the Fed,” he said.

In the US, mortgage rates have actually risen since September, reflecting bets that borrowing costs will remain relatively high.

Olu Sonola, head of U.S. economic research at Fitch Ratings, said that despite Wednesday’s cut, it felt like the Fed was signaling a “pause” as questions about White House policy make it more uncertain about the path forward.

“Growth is still good, the labor market is still healthy, but inflation storms are brewing,” he said.