What to see at the Federal Reserve meeting on Wednesday

Federal Reserve officials will conclude a two-day policy meeting on Wednesday and announce a new interest rate decision at a time when economic growth remains resilient and inflation has shown recent signs of stubbornness.

Central bankers are widely expected to leave interest rates unchanged. But investors will be closely watching their new economic estimates and what Federal Reserve Chairman Jerome H. Powell says at a news conference for hints about what might happen next.

Many economists still expect the Fed to cut rates several times before the end of 2024, which could make it cheaper to borrow to buy a home or start a business. But the longer rapid price increases continue, the more likely it is that policymakers will feel the need to keep interest rates high for longer in an effort to ensure inflation is fully kept under control.

Here’s what to look for in the Fed’s policy statement and its economic projections, due out at 2 p.m. in conjunction with the 2:30 p.m. news conference.

It is unlikely that interest rates will change.

Fed officials are widely expected to keep interest rates at their current level, around 5.3 percent, where they have been since July 2023.

While policymakers predicted in December that they would likely cut rates by three quarter points this year, they have tried to keep their options open as to when those steps could come. Officials want to make sure inflation is fully under control before cutting borrowing costs, and for now both major inflation measures (the consumer price index and the personal consumption expenditure index) are hovering above the Fed’s 2 percent target.

The number of expected rate cuts will be the big question.

Given the recent persistence of inflation, it is possible that officials could predict slightly faster price increases in late 2024 when they release their quarterly economic forecasts.

This is the first update of the projections since December. Economists will be watching the estimates especially closely for what the Fed says about the future path for interest rates. They previously showed that policymakers expected interest rates to fall to 4.6 percent by the end of 2024 and to 3.6 percent by the end of 2025.

That path for rate cuts could change if officials start to think it would take more time and effort to completely eradicate inflation.

Some economists now expect forecasts to point to two interest rate cuts in 2024, to a level of around 4.9 percent, instead of the three cuts previously expected.

What Powell says will matter most.

The most important part of the Fed meeting will undoubtedly be the 2:30 PM press conference with Mr. Powell. He has recently spoken publicly and delivered two days of testimony in Congress in early March, but his comments on Wednesday will be closely watched for any updates to his thinking after the Fed’s latest policy debate.

The Fed chairman may be asked to clarify a comment he made during those appearances: At one point, Mr. Powell said it would be appropriate to cut rates if the Fed was confident that inflation would be sufficient had dropped, and added: “and we’re not far off.”

The mystery is what ‘not far’ means.

Mr. Powell is also likely to repeat a message he has been preaching for months, namely that there are risks in cutting rates too early, and also in leaving rates high for too long.

If the Fed cuts borrowing costs prematurely, before inflation moves decisively back to 2 percent, it could prove even more difficult to completely eradicate price increases over time. But if the Fed keeps interest rates high for too long, it threatens to harm the labor market. And once unemployment starts to rise a little bit, it tends to rise significantly.

Mr. Powell and his colleagues are still trying to engineer a “soft landing” in which the economy cools without leading to major job losses.

“We’re trying to use our policies to keep that growth going and the labor market strong, while also making further progress on inflation,” Mr. Powell said during his testimony.

The Fed’s plan for its balance sheet is another question.

Fed officials have another policy project on their plate in March. They have indicated in recent communications that they will discuss plans for their balance sheet of bond investments at this meeting. Fed officials have been shrinking their balance sheet by allowing securities to mature without reinvestment, a process that is taking some steam out of markets and the economy.

The Fed’s balance sheet grew during the pandemic as the central bank bought bonds in large amounts, first to calm markets and later to stimulate the economy. Officials want to return these assets to more normal levels to prevent them from playing such a large role in financial markets. At the same time, they want to avoid reducing their bond holdings so much that they run the risk of the market bursting.