A divided US Federal Reserve lowered interest rates on Wednesday for a third consecutive time this year, flagging labour market concerns even as inflation remained elevated while US President Donald Trump's tariffs bite.

The cut by a quarter percentage point brings rates to a range between 3.50 percent and 3.75 percent, the lowest in around three years.

The move was in line with market expectations, although the path ahead is less certain.

The Fed pencilled in at least one more rate reduction next year, and flagged heightened risks to employment as it announced Wednesday's move.

But a rift within the central bank deepened with three officials voting against the modest reduction.

Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeffrey Schmid instead sought to keep rates unchanged. Fed Governor Stephen Miran backed a bigger, half-percentage-point cut.

The Fed's rate-setting committee consists of 12 voting members – including seven members of the board of governors, the New York Fed president and a rotation of reserve bank presidents – who take a majority vote in deciding the path of rates.

Powell noted that some disagreement was expected, pointing to tensions between inflation risks and a weakening jobs market.

"It's a close call," he said.

For now, he added, the Fed is "in the range of neutral" rates, with neutral being a level that neither stimulates nor restricts economic activity.

The fed has previously described interest rates as "restrictive" – "neutral" could suggest less justification to lower levels quickly.

Powell added that the US economy needs several years where wages are higher than inflation for "people to start feeling good about affordability."

On Wednesday, Fed officials also lifted their 2026 GDP growth forecast to 2.3 percent, from 1.8 percent previously.

They eased their inflation expectations slightly for the next year, and kept unemployment rate expectations unchanged.

These projections could shift as the central bank grapples with a delay in federal economic data releases after a record-long government shutdown. (AFP)