The Fed Holds Interest Rates Steady and Is Not Quite Ready to Cut Them.

Federal Reserve officials held interest rates at their highest level in more than two decades at their first meeting of 2024 and hinted that their next move will be to lower borrowing costs — even as policymakers made clear they are not yet ready to make that cut.

Jerome H. Powell, the Fed’s chair, said that the country had “six good months” of moderating inflation, but officials wanted to see continued progress before lowering rates.

“We believe that our policy rate is likely at its peak for this tightening cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Mr. Powell said. He added that when it comes to gaining enough confidence to move borrowing costs lower, “we want to see more good data.”

Mr. Powell said that he did not think it was “likely” that Fed officials would have enough evidence to cut interest rates by their next meeting on March 19-20. That could leave investors looking toward later meetings — such as gatherings in May and June — as they consider when the first rate cut might come.

Wall Street had been hoping for imminent rate reductions, and stock prices slumped following the Fed’s meeting and Mr. Powell’s remarks. Investors increasingly bet that borrowing costs would remain unchanged in March.

Central bankers are trying to keep their options open as they try to strike a delicate balance. They do not want to keep interest rates too high for too long, crushing growth. At the same time, they do not want to lower rates prematurely, risking a rebound in demand that could keep inflation high.

“The takeaway is that they’re really still on the fence,” said Gennadiy Goldberg, chief of U.S. rates strategy at T.D. Securities. “Cuts are coming. It’s a question of when, and not if.”

The Fed’s key interest rate is set to a range of 5.25 to 5.5 percent, up sharply from near-zero as recently as March 2022. High interest rates are meant to weigh on economic demand by making it more expensive to borrow money to buy a house or car or expand a business, and officials think that their current stance is high enough to meaningfully weigh on growth.

Given that, policymakers have held interest rates steady since July 2023 to see how their policy is affecting the economy — and they have received good news in recent months. Inflation has been coming down swiftly even as the job market remains solid and overall growth stays strong. That has stoked hopes that the economy might pull off a “soft landing,” one in which inflation returns to a normal pace without a painful recession.

Now, Fed officials are remaining flexible as they try to secure that goal.

“We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation,” Mr. Powell said during his news conference. “At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

As it tries to strike a balance, the Fed is avoiding locking itself into any firm plan.

If inflation were to come in faster than expected, “then we’ll go slower or later or both,” Mr. Powell said. Good inflation data “would tell us that we could go sooner, and perhaps go faster.”

The Fed’s last economic forecast, released in December, predicted that officials could lower borrowing costs by three-quarters of a percentage point over the course of 2024. Policymakers will release a fresh set of those interest rate and economic projections at their March meeting — providing an update on whether they still think cuts of that magnitude are likely to be appropriate.

The resilience of the American economy has surprised many forecasters since the Fed’s last estimates. Consumers continue spending at a solid clip, overall growth beat expectations toward the end of 2023, and the job market continues to chug along.

At the same time, the labor market does show some signs of coming back into balance after a period of red-hot hiring. Job openings are lower than they were. Wage growth has slowed somewhat.

And strong demand has come alongside a steady slowing in price increases. The Consumer Price Index, an inflation measure, peaked at 9.1 percent in the summer of 2022, but it is now down to 3.4 percent. That is still faster than the roughly 2 percent that is normal, but recent progress has been steadier than many economists had expected.

Fed policy works to cool inflation by slowing the economy, so some economists had speculated that strong growth could prod officials to keep interest rates higher for longer. But Mr. Powell emphasized on Wednesday that the Fed was not bent on weakening the economy and job market as long as price increases continued to cool.

“We’re not looking for a weaker labor market,” Mr. Powell said. “We’re looking for inflation to continue to come down as it has been coming down for the last six months.”

Still, risks to inflation remain — including a few that could surface before the Fed’s next meeting.

Adjustments to the consumer price measure will be released Feb. 9, which could make progress toward cooling inflation look either better or worse than it did in initial reports. Economists are still waiting for a widely expected slowdown in housing-related inflation to fully materialize.

Global forces could also push up prices. For instance, geopolitical turmoil in the Middle East could snarl healing supply chains or push up gas prices, should it last or worsen.

Such threats are enough to keep the Fed from declaring inflation vanquished. Mr. Powell noted that he was more worried about inflation stalling out at a rate above normal than an outright acceleration, but that policymakers are attentive to all risks.

Still, the overall tone of both the Fed’s statement and the news conference was unquestionably optimistic: Mr. Powell embraced strong growth, lauded continued job market gains and expressed hope that the return to normal inflation would continue.

When asked if he was ready to say that the economy had achieved a “soft landing,” he said not yet — but also hinted that the goal was coming into view.

“Certainly, I’m encouraged — and we’re encouraged — by the progress,” he said. “But we’re not declaring victory at all at this point.”