By Mark Felsenthal

WASHINGTON (Reuters) – The Federal Reserve lowered a key U.S. interest rate by a modest quarter percentage point on Wednesday and hinted the move could be the last in a series dating to mid-September.

However, it kept its options open and financial markets saw some chance more rate cuts could be in store.

In announcing its decision, the U.S. central bank pointed to the “substantial” reductions it has already put in place and noted that energy and other commodity prices were on the rise. It also dropped a reference contained in its last interest-rate announcement that “downside risks to growth remain.”

“The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity,” the central bank said.

While the Fed said uncertainty on the outlook for prices remained high, it also said it still believed inflation would moderate over time, which some analysts saw as suggesting the possibility rates could move lower. Two Fed officials dissented from the decision to cut rates, preferring no change.

Prices for U.S. stocks and government bonds rose, while the dollar fell.

“This statement strongly implies that the Fed will be on pause for some time,” said Joseph Brusuelas, U.S. chief economist at IDEAglobal in New York. “The risks to the upside vis-a-vis inflation are serious enough to be on hold until the lagged impact of past Fed monetary policy and the fiscal stimulus on its way take hold.”

The Fed’s action takes the bellwether federal funds rate, which banks charge each other for overnight loans, to 2 percent, the lowest since December 2004. It was the seventh reduction in a campaign that has brought the key lending rate down by 3.25 percentage points since mid-September.  Continued…