The Federal Reserve is expected to keep interest rates at a 23-year high for the seventh consecutive meeting on Wednesday and signal that it will cut rates this year fewer times than previously thought.

Investors and other market observers will be paying close attention to Fed officials’ latest economic forecasts — known as the “dot plot.” Economists are widely expecting officials to pencil in one or two rate cuts this year, instead of the three they forecast in March. Their projections for inflation will also be an important clue for the timing of the first rate cut.

Inflation’s slowdown stalled in the first three months of the year, crushing Wall Street’s hope that the Fed could cut rates aggressively in 2024, but then economic data showed that inflation moderated again in April. Fed policymakers need to be assured that inflation has cooled enough and is expected to moderate further before cutting rates. The Labor Department releases its Consumer Price Index for May at 8:30 am ET Wednesday.

Fed Chair Jerome Powell’s remarks during his post-meeting news conference could also provide some hints on what to expect from the central bank in upcoming policy meetings. The Fed chief will likely double down on officials’ current strategy of waiting patiently for more data proving that inflation is headed toward their 2% target before they begin to lower borrowing costs. A solid job market, as reflected in the latest employment figures, is helping the Fed sit tight.

The Fed holding off on cutting rates is in marked contrast with other central banks that have already begun to lower borrowing costs, such as the European Central Bank and the Bank of Canada.

Wall Street’s best bet for the first rate cut is currently September, according to futures.

But before that meeting, Powell is expected to make his annual speech at the Jackson Hole annual economic symposium in August, which usually contains key hints for policy moves later in the year. There appears to be broad agreement among Fed officials that interest rates are high enough and that central bankers can hold rates steady for now, thanks to the economy’s resilience.

“I don’t feel any urgency or need that we have to make a decision now,” New York Fed President John Williams said a few weeks ago at an event hosted by the Economic Club of New York when asked if he’d support a rate cut.

“The policy that we put in place is working,” Williams added. “But the view on what is the appropriate path for policy is adjusting with the change in the outlook.”

Still, Powell and other officials have reiterated in recent speeches that the Fed will likely cut interest rates sometime this year and the Fed chief could re-emphasize that view in his post-meeting press conference. Minneapolis Fed President Neel Kashkari said at a London event in late May that “it certainly won’t be more than two cuts.”

It’ll be a difficult and consequential decision whenever the Fed starts cutting, because there are risks if the Fed reduces rates too soon — and risks if it cuts too late. The former could result in inflation heating back up and the latter could result in the economy slipping into a recession because rates were too high for too long.

The US economy remains healthy by several key measures, but data shows that many Americans are under pressure. Interest rates are at their highest level in nearly a quarter century, inflation remains elevated, borrowers continue to rack up debt and pandemic savings are dwindling.

Consumers have also slowed their spending in recent months and retailers say that shoppers have changed their purchasing behavior.

Additionally, Fed officials’ projections for unemployment this year will likely be revised higher, since the jobless rate is currently at 4%, already matching officials’ current median projection for 2024.

A weaker-than-expected jobs total for April raised fears that the economy is swiftly deteriorating, but data stretching over several months suggests that month was likely just a one-off and not reflective of a new trend.

“We’re seeing a cooling off from nominal levels that are still very high, so we’re basically just normalizing back towards more sustainable levels of growth,” Garrett Melson, portfolio strategist at Natixis Investment Managers, told CNN.

Still, economists are generally expecting both the broader economy and the job market to slow further in the second half of the year. A cooling economy would bode well for lower interest rates.

The Fed clearly isn’t content with where inflation is right now. And it remains to be seen whether officials will be satisfied anytime soon.

The Fed’s official target is 2%, so the central bank will keep at it until inflation has reached that threshold and remains there for several months.

The Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — rose 2.7% in April from a year earlier, down substantially from 4.4% in April 2023. But on an annualized basis, consumer prices were up 2.9% over the six months through April, an acceleration from 2.4% in the prior six months.

Powell has said that “we’re not satisfied with 3% inflation.”

One particularly stubborn category has kept pressure on inflation for months: shelter. It makes up a large portion of the CPI and, to a lesser extent, PCE. Fed policymakers and economists have been waiting for declining rents to show up in the data. Wednesday’s inflation report should shed new light on that.

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