New Delhi, Dec. 11 -- The US Federal Reserve's rate-setting committee, the Federal Open Market Committee (FOMC), has cut the federal funds rate by 25 basis points, citing increased downside risks to employment even as inflation remains elevated. The Fed also announced it would resume purchasing short-term Treasury bills worth $40 billion a month to ease liquidity strains in the money market. It had already stopped shrinking its balance sheet in December. This liquidity boost came as a positive surprise.

Forward guidance, reflected in the dot plot-a chart showing each member's forecast for the path of interest rates-suggests that in 2026, the federal funds rate may be cut by another 25 basis points. The interest rate futures market signal...