The Federal Reserve meets on Wednesday. This is what you should look at.

Federal Reserve officials will conclude their two-day meeting on Wednesday and are expected to keep interest rates steady at their highest level in two decades when they release their policy decision at 2 p.m.

But investors are likely to closely monitor the meeting (particularly Chairman Jerome H. Powell’s 2:30 p.m. press conference) for clues about when authorities might begin lowering interest rates. The Federal Reserve has kept its policy rate in a range of 5.25 to 5.5 percent since July, and officials projected in December that they could reduce borrowing costs by three-quarters of a percentage point over the course of 2024.

But both the timing and magnitude of those rate cuts remain uncertain. For one thing, inflation has fallen more rapidly than many economists expected in recent months. On the other hand, economic growth is proving stronger than expected, which could give companies the means to continue increasing prices in the future.

Here’s what you should know about this meeting.

Fed Post-Meeting Policy Statement it suggested that officials will look at economic data “to determine the extent of any additional policy tightening that may be appropriate.” Now that further rate increases seem less and less likely, that language may need to be modified.

Federal Reserve officials don’t want to keep interest rates so high for so long that they squeeze the economy too much and push it into a recession. On the other hand, they don’t want to cut rates too much too soon, which would allow the economy to accelerate and risk a new spike in inflation. Powell could talk about how officials will try to strike that balance.

Much of what comes next will depend on which numbers Powell and his colleagues decide to focus on (growth or inflation), and investors could get a hint of that this week. Both growth and consumer spending are faster than many economists expected. But the Fed’s preferred inflation gauge is also below 3 percent for the first time since early 2021, even after excluding food and fuel costs, which can fluctuate from month to month.

Mixed signals have made Wall Street less certain about what the Federal Reserve will do next. Most investors previously expected a rate cut at the next Federal Reserve meeting in March. But sentiment now leans toward a rate cut in May. Powell’s comments will have the potential to change those expectations, either making an imminent rate cut more likely or pushing it further off the table.

“It’s a conversation about: When do they start reducing interest rates? Because they don’t want to squeeze too much,” said Gennadiy Goldberg, chief U.S. rates strategist at TD Securities.

“We are approaching the last non-face-to-face meeting,” he said, meaning that while no move in rates is expected in January, rate cuts could be on the table at any subsequent meeting.

Another point of interest to keep in mind on Wednesday: When the Federal Reserve starts cutting rates, what will that look like? Rate cuts could come quickly and steadily, be large or small, and come earlier or later this year.

Christopher Waller, governor of the Federal Reserve, has already suggested that the central bank should be able to lower rates “methodically and carefully,” rather than doing so through the large rate drops that have sometimes occurred in the past.

The Federal Reserve has been reducing its balance of bond holdings, after it grew dramatically during the pandemic when the central bank bought securities to help calm markets and stimulate the economy.

Officials have been reducing their holdings by allowing their securities to expire without reinvesting them. But authorities will have to stop doing that at some point, because reducing bond holdings too much could cause chaos in the markets.

In fact, minutes from the Federal Reserve’s December meeting showed that officials thought “it would be appropriate for the Committee to begin discussing the technical factors that would guide a decision to slow the pace of the runoff well before it was made.” such decision, in order to provide appropriate prior notice to the public.”

Will that discussion of nerdy details happen at that meeting? Economists will be watching.

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