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

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

Fed officers can have an opportunity to reply to the most recent knowledge on Wednesday, once they conclude a two-day coverage assembly. Central bankers are anticipated to depart rates of interest unchanged, however their recent quarterly financial projections might present how the most recent financial developments are influencing their view of what number of price 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 price cuts by the top of 2024. Since then, the economic system has remained surprisingly robust and inflation, whereas nonetheless down sharply from its 2022 highs, has proved cussed. Some economists suppose it’s attainable that officers might dial again their price reduce expectations, projecting simply two strikes this yr.

By leaving charges greater for barely longer, officers might preserve 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 world chief economist, explaining that the economic system has held up higher than could be anticipated if charges have been weighing on development drastically, and that slicing prematurely dangers permitting inflation to run hotter in 2025. “We’ve 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 likelihood that the Fed will preserve charges at their present 5.3 % by 2024.

However markets have been steadily revising what number of price cuts they count on. Traders now wager that central bankers will reduce charges 3 times by the top of the yr, to about 4.6 %. Only a month in the past, they anticipated 4 cuts, and noticed an inexpensive likelihood of 5.

Two large developments have shifted these views.

Inflation has been firmer than anticipated. The Client Value Index measure got here in above economists’ forecasts in January and February as companies 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 knowledge 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 % 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 concern is that the low-hanging fruit related to a therapeutic of provide chains and drop in items costs has been plucked, whereas a ground could also be forming beneath service sector costs,” she defined.

The second improvement is that the economic system nonetheless has numerous momentum. Job features have been stable in February, although the unemployment price ticked up, and wage growth is decelerating solely slowly. If the economic system retains an excessive amount of vigor, it might preserve the job market tight and preserve wages climbing, which might in flip give corporations an incentive to boost costs. That would make it laborious for the Fed to wrestle inflation down in a long-lasting manner.

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

On the identical time, the Fed doesn’t wish to go away rates of interest excessive for too lengthy. If it does, it might damage the economic system greater than is critical, costing People jobs and wage features.

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

Jerome H. Powell, the Fed chair, stated in a latest congressional testimony that it might be applicable 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 could be to maneuver charges down too quickly or too rapidly with out adequate 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 venture on their plate in March: They’ve signaled that they are going to focus on 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 of little bit of vim out of markets and the economic system on the margin.

The Fed’s steadiness sheet grew in the course of the pandemic because it purchased bonds in massive portions, first to calm markets and later to stimulate the economic system. Officers wish to shrink it again to extra regular ranges to keep away from enjoying such an enormous position in monetary markets. On the identical time, they wish 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 wish to make a plan for slowing steadiness sheet runoff first, then flip to price cuts. He thinks the primary price discount might are available June or July.

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

“We could also be getting a bit of jumpy,” Mr. Feroli stated. The concept that the “final mile” might be more durable “has a pleasant rhetorical enchantment, however then you definately form of scratch down, and I haven’t been satisfied.”