Fed holds rates steady, hints at cuts later in year

WASHINGTON — The Federal Reserve indicated Wednesday that it’s nearing a longawaited shift toward cutting interest rates, a sign that its officials have grown confident that they’re close to fully taming inflation. But the Fed also signaled that the first rate cut is likely months away.

The central bank kept its key rate unchanged at about 5.4%, a 22-year high.

In a statement, it marked a policy shift by dropping previous wording that said it was still considering further rate hikes. Still, the Fed cautioned that it “does not expect it will be appropriate” to cut rates “until it has gained greater confidence that inflation is moving sustainably” to its 2% target. That suggests that a rate reduction is unlikely at its next meeting in March.

The overall changes to the statement — compared with its last meeting in December — show that the Fed has moved toward considering rate reductions while maintaining flexibility. In December, the officials had signaled that they expected to carry out three quarter-point rate cuts in 2024. Yet they have said little about when those cuts might begin. Senior officials have stressed that the Fed will proceed cautiously.

The change in the Fed’s stance Wednesday comes as the economy is showing surprising durability after a series of 11 rate hikes helped drastically slow inflation, which had hit a four-decade high 18 months ago. Over the past six months, prices have risen at an annual rate of just below 2%, consistent with the Fed’s target level, according to its preferred inflation gauge. And growth remains healthy.

In the final three months of last year, the economy expanded at a 3.3% annual rate, the government said last week.