(Reuters) - U.S. stock index futures edged higher on Thursday as investors digested the Federal Reserve's projections of fewer-than-expected interest rate cuts and higher inflation next year that pummeled Wall Street a day earlier.

The Fed on Wednesday said it now expects to make just two 25 basis point (bps) cuts next year, half a percentage point less than its September forecast and raised inflation expectation for the first year of the new Trump administration, sending the three main U.S. stock indexed to their sharpest daily declines since August.

Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week's expectations of three rate cuts.

The S&P 500 hit a one-month low on Wednesday as investors adjusted their risk exposure to reflect the impact of higher borrowing costs in 2025, while the Dow dropped for the tenth straight session, its longest streak of losses since 1974.

Dow e-minis were up 124 points, or 0.3%, S&P 500 E-minis were up 21.3 points, or 0.4% and Nasdaq 100 E-minis were up 58.5 points, or 0.3%.

The hawkish shift from the Fed comes just three months after the U.S. central bank began its monetary easing cycle with a larger-than-usual 50 basis point interest rate cut that spurred risk appetite and helped push Wall Street to record levels.

Since then improving U.S. economic data and the prospects of higher inflation under Donald Trump's second U.S. presidential term have weighed on the Fed's view.

"If the Fed is holding off on a belief that we're seeing an end to disinflation, then equity faces renewed headwinds and drawdown," said Chris Weston, head of research at Pepperstone.

Stocks broadly gained some ground in premarket trading from sharp losses on Wednesday. Megacap Tesla and Nvidia firmed about 2% each.

Among corporate news, Micron slumped 14% after its forecast of quarterly revenue and profit below estimates.

SentinelOne gained about 4% as Jefferies upgraded the cybersecurity firm's shares to "buy" from "hold."