Slowing America’s speedy inflation has been an unexpectedly painless course of to date. Excessive rates of interest are making it costly to take out a mortgage or borrow to start out a enterprise, however they haven’t slammed the brakes on financial progress or drastically pushed up unemployment.

Nonetheless, value will increase have been hovering round 3.2 p.c for 5 months now. That flatline is stoking questions on whether or not the ultimate part in combating inflation might show harder for the Federal Reserve.

Fed officers may have an opportunity to answer the newest information on Wednesday, once they conclude a two-day coverage assembly. Central bankers are anticipated to depart rates of interest unchanged, however their contemporary quarterly financial projections might present how the newest financial developments are influencing their view of what number of fee cuts are coming this yr and subsequent.

The Fed’s most up-to-date financial estimates, launched in December, urged that Fed officers would make three quarter-point fee cuts by the tip of 2024. Since then, the economic system has remained surprisingly sturdy and inflation, whereas nonetheless down sharply from its 2022 highs, has proved cussed. Some economists assume it’s doable that officers might dial again their fee reduce expectations, projecting simply two strikes this yr.

By leaving charges greater for barely longer, officers might hold strain on the economic system, guarding in opposition to the danger that inflation would possibly choose again up.

“The Federal Reserve shouldn’t be in a race to chop charges,” stated Joseph Davis, Vanguard’s international chief economist, explaining that the economic system has held up higher than can be anticipated if charges had been weighing on progress drastically, and that reducing prematurely dangers permitting inflation to run hotter in 2025. “We’ve got a rising chance that they don’t reduce charges in any respect this yr.”

Mr. Davis’s crew is an outlier in that regard: Investors more broadly nonetheless see a really small probability that the Fed will hold charges at their present 5.3 p.c by means of 2024.

However markets have been steadily revising what number of fee cuts they count on. Buyers now wager that central bankers will reduce charges thrice by the tip of the yr, to about 4.6 p.c. Only a month in the past, they anticipated 4 cuts, and noticed an affordable probability of 5.

Two massive developments have shifted these views.

Inflation has been firmer than anticipated. The Shopper Worth Index measure got here in above economists’ forecasts in January and February as providers inflation proved cussed and some items, like attire, elevated in value.

Wholesale inflation — which measures the prices of purchases companies make — additionally got here in hotter than anticipated in information launched final week. That issues as a result of it feeds into the Private Consumption Expenditures inflation index, a extra delayed measure however the one which the Fed formally targets in its 2 p.c inflation purpose.

Given the information, Fed officers are possible to make use of this assembly to debate “whether or not inflation can proceed to chill,” Diane Swonk, chief economist at KPMG U.S., wrote in a analysis word.

“The fear is that the low-hanging fruit related to a therapeutic of provide chains and drop in items costs has been plucked, whereas a flooring could also be forming beneath service sector costs,” she defined.

The second growth is that the economic system nonetheless has loads of momentum. Job good points had been strong in February, although the unemployment fee ticked up, and wage growth is decelerating solely slowly. If the economic system retains an excessive amount of vigor, it might hold the job market tight and hold wages climbing, which might in flip give firms an incentive to boost costs. That might make it exhausting for the Fed to wrestle inflation down in an enduring method.

The Fed doesn’t need to reduce rates of interest prematurely. If the central financial institution fails to wrestle value will increase beneath management shortly, it might persuade customers and companies that inflation is prone to be greater going ahead. That might make it even tougher to stamp out inflation down the street.

On the similar time, the Fed doesn’t need to go away rates of interest excessive for too lengthy. If it does, it might harm the economic system greater than is important, costing Individuals jobs and wage good points.

Fed officers have been signaling for months that rates of interest are coming down quickly, however they’ve additionally been attempting to maintain their choices open on timing and magnitude.

Jerome H. Powell, the Fed chair, stated in a current congressional testimony that it will be acceptable to decrease rates of interest when the Fed was assured that inflation had come down sufficient, including, “And we’re not removed from it.”

However a number of of his colleagues have struck a cautious tone.

“At this level, I believe the larger mistake can be to maneuver charges down too quickly or too shortly with out ample proof that inflation is on a sustainable and well timed path,” Loretta Mester, the president of the Federal Reserve Financial institution of Cleveland, stated in a recent speech. That time has been echoed by different officers, including Christopher Waller, a Fed governor.

Fed officers have one other coverage undertaking on their plate in March: They’ve signaled that they may talk about their future plans for his or her steadiness sheet of bond holdings. They’ve been shrinking their steadiness sheet by permitting securities to run out with out reinvestment, a course of that takes a bit little bit of vim out of markets and the economic system on the margin.

The Fed’s steadiness sheet grew throughout the pandemic because it purchased bonds in giant portions, first to calm markets and later to stimulate the economic system. Officers need to shrink it again to extra regular ranges to keep away from taking part in such an enormous function in monetary markets. On the similar time, they need to keep away from overdoing shrinking their bond holdings a lot that they threat market ruptures.

George Goncalves, head of U.S. Macro Technique at MUFG, stated he thought officers would need to make a plan for slowing steadiness sheet runoff first, then flip to fee cuts. He thinks the primary fee discount might are available June or July.

Michael Feroli, the chief U.S. economist at J.P. Morgan, expects a fee reduce in June — and stated he was doubtful of the argument that it might show tougher to complete the job on inflation than it was to start out it. He thinks that cooling labor prices and housing inflation will proceed to gradual value will increase.

“We could also be getting a bit jumpy,” Mr. Feroli stated. The concept the “final mile” will likely be tougher “has a pleasant rhetorical enchantment, however you then sort of scratch down, and I haven’t been satisfied.”