Federal Reserve officers left rates of interest unchanged on Wednesday and continued to forecast that borrowing prices will come down considerably by the top of the yr as inflation eases.

Fed policymakers have been battling fast inflation for 2 full years as of this month, and whereas they’ve been inspired by current progress, they don’t seem to be but able to declare victory over worth will increase. Given that, they’re preserving rates of interest at a excessive stage that’s anticipated to weigh on progress and inflation, at the same time as they sign that price cuts are probably within the months forward.

Officials held rates of interest regular at about 5.3 p.c, the place they’ve been set since July, of their March policy decision.

Policymakers additionally launched a recent set of quarterly economic estimates for the primary time since December, and people projected that borrowing prices will finish 2024 at 4.6 p.c. That unchanged forecast means that they nonetheless anticipate to make three quarter-point price cuts this yr.

Central bankers try to information the economic system towards a smooth touchdown — a state of affairs the place inflation cools again to regular with out a painful financial slowdown that pushes unemployment sharply greater. They need to guarantee that they preserve rates of interest excessive lengthy sufficient to deliver worth will increase absolutely underneath management, however additionally they need to keep away from overdoing it and inflicting a recession.

“The risks are really two-sided here: We’re in a situation where if we ease too much or too soon, we could see inflation come back,” Jerome H. Powell, the Fed chair, defined throughout a news convention on Wednesday. “If we ease too late, we could do unnecessary harm to employment.”

Given these dangers, officers are creeping towards price cuts solely cautiously. Mr. Powell prevented giving any trace when requested about when price cuts may begin, in a transparent effort to maintain the Fed’s choices open.

Because the Fed has not but begun to decrease charges, a minimum of a few of its anticipated cuts this yr may come within the months approaching the November election. That may open the central financial institution as much as criticism. Former President Donald J. Trump, who typically pushed for decrease rates of interest when he was in workplace, has already recommended that it could be “political” for Mr. Powell to decrease borrowing prices forward of the election.

But Yelena Shulyatyeva, a senior economist at BNP Paribas, famous that price cuts have been prone to come effectively earlier than the election. Many economists and investors now expect a transfer in June. And Gennadiy Goldberg, a charges strategist at TD Securities, mentioned Fed officers may offset any political threat by making it clear why they have been making their strikes: as a result of financial circumstances have modified.

“They will try their best to sidestep any perception of impropriety,” Mr. Goldberg mentioned, explaining that the Fed, which is unbiased of the White House, has adjusted borrowing prices in election years earlier than, and it’s only a matter of “communication.”

Rate cuts would sign a brand new stage within the Fed’s inflation combat.

Fed officers had lifted charges quickly from March 2022 to mid-2023 in a bid to hit the brakes on the economic system. But they stopped the will increase after July, largely as a result of inflation started to return down sharply towards the top of final yr.

Price will increase are actually way more reasonable than they have been a couple of years in the past. The Consumer Price Index measure stood at 3.2 p.c in February, down sharply from a 9.1 p.c peak in 2022. The Fed’s most popular inflation measure, the Personal Consumption Expenditures index, comes out at extra of a delay, however additionally it is down significantly. It stood at 2.8 percent in January after stripping out meals and gasoline prices for a way of the underlying “core” worth pattern.

Fed officers have signaled in current months that they anticipate to decrease rates of interest this yr, as a result of cooler inflation signifies that the Fed doesn’t must sluggish the economic system so aggressively.

High rates of interest weigh on demand by making it dearer to borrow to purchase a home or develop a enterprise, setting off a series response that trickles by means of the economic system and cools the job market. That helps to tamp down inflation, nevertheless it additionally dangers making a painful recession.

Still, inflation is lingering above the Fed’s 2 p.c purpose even after the 2023 progress, and its descent has not too long ago stalled. January and February inflation readings have been hotter than anticipated. Officials nonetheless hope that worth will increase will proceed to fade this yr, however they’re keeping track of incoming information for any indication that they is likely to be flawed.

Policymakers have recommended that they want higher “confidence” that inflation is coming again to 2 p.c earlier than they start to chop rates of interest.

The current tick greater in worth will increase “certainly hasn’t improved our confidence,” Mr. Powell mentioned, noting that the Fed doesn’t “really know if this is a bump on the road or something more — we’ll have to find out.”

Mr. Powell mentioned a few months of hotter inflation information weren’t sufficient to counsel that progress on decreasing inflation was reversing, although.

“They haven’t really changed the overall story,” he mentioned, explaining that inflation is transferring down regularly on a “sometimes bumpy road” to 2 p.c.

Mr. Powell made it clear that officers have been watching inflation carefully as they thought concerning the path forward for rates of interest, however officers are additionally scrutinizing different enterprise circumstances.

The economic system has retained stunning momentum whereas rates of interest hover close to a two-decade excessive. Fed officers forecast that progress can be stronger in 2024, 2025 and 2026 than they beforehand anticipated, based mostly on their recent estimates. Officials additionally projected that the unemployment price would stay barely decrease this yr than they’d earlier anticipated.

Mr. Powell recommended {that a} robust job market wouldn’t be a motive in itself to carry off on slicing rates of interest. Last yr, the job market grew strongly as immigrants and different staff poured into it, however that did little to cease inflation from slowing.

But if the economic system does retain extra vigor, it may imply that it takes greater rates of interest to sluggish it down over time.

Officials predicted that they may minimize charges barely much less in 2025 than beforehand anticipated, eradicating one price minimize from their forecast subsequent yr.

The Fed additionally mentioned its plans for its steadiness sheet of bond holdings at this assembly. Mr. Powell mentioned officers didn’t make any selections, however he signaled that they might quickly start to sluggish efforts to shrink their safety holdings.

The Fed’s steadiness sheet grew in the course of the pandemic because the central financial institution bought bonds in big sums, first to calm markets and later to stimulate the economic system. Officials need to pare these holdings again to extra regular ranges to keep away from taking part in such a giant position in monetary markets. At the identical time, they need to keep away from overdoing the discount a lot that they threat market ruptures.

But for now, markets are particularly attuned to what’s prone to occur with rates of interest — how a lot they will come down, and when that may begin.

Stocks rose as Mr. Powell spoke, maybe deciphering his feedback as an indication that officers are nonetheless prepared to chop charges so long as progress on inflation holds up.

“We’re looking for more good data, and we would certainly welcome it,” Mr. Powell concluded.