The Federal Reserve Wednesday emphasized that inflation has remained stubbornly high in recent months and said it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2% target.

The Fed issued its decision in a statement after its latest meeting, at which it kept its key rate at a two-decade high of 5.3%. Several hotter-than-expected reports on prices and economic growth have recently undercut the Fed’s belief that inflation was steadily easing. The combination of high interest rates and persistent inflation has also emerged as a potential threat to President Joe Biden’s re-election bid.

“In recent months, there has been a lack of further progress toward the (Fed’s) 2% inflation objective,” the statement said.

The central bank’s message Wednesday reflects an abrupt shift in its timetable on interest rates. As recently as their last meeting on March 20, the Fed’s policymakers had projected three rate reductions in 2024, likely starting in June. Rate cuts by the Fed would lead, over time, to lower borrowing costs for consumers and businesses, including for mortgages, auto loans and credit cards.

But given the persistence of elevated inflation, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.

The Fed’s more cautious outlook stems from three months of data that pointed to stubborn inflation pressures and robust consumer spending. Inflation has cooled from a peak of 7.1%, according to the Fed’s preferred measure, to 2.7%, as supply chains have eased and the cost of some goods has actually declined.

Average prices, though, remain well above their pre-pandemic levels, and the costs of services ranging from apartment rents and health care to restaurant meals and auto insurance continue to surge. With the presidential election six months away, many Americans have expressed discontent with the economy, notably over the pace of price increases.

On Wednesday, the Fed also said it would slow the pace at which it’s unwinding one of its biggest COVID-era policies: Its purchase of several trillion dollars in Treasury securities and mortgage-backed bonds, an effort to stabilize financial markets and keep longer-term rates low.

The Fed is now allowing $95 billion of those securities to mature each month, without replacing them. Its holdings have fallen to about $7.4 trillion, down from $8.9 trillion in June 2022, when it began reducing them. On Wednesday, the Fed said it would, in June, reduce its holdings at a slower pace, and allow a total of $60 billion of bonds to run off each month.

“If higher inflation does persist,” the Fed chair earlier said, “we can maintain the current level of (interest rates) for as long as needed.”

Most economists expect Powell to reinforce that message during the news conference he will hold after the Fed's meeting ends Wednesday. But he could go still further.

During his last news conference in March, for example, Powell said the Fed's rate was “likely at its peak” and that, “if the economy evolves broadly as expected, it will likely be appropriate” to start cutting rates this year.

If Powell avoids repeating that sentiment this time, it could suggest that the Fed is less likely to reduce its benchmark rate this year.

“If that (message) is dropped, I think it would be a much stronger signal that we have to hold rates higher for longer,” said Jonathan Pingle, chief economist at UBS.

Though economic growth reached just a 1.6% annual pace in the first three months of this year, a slowdown from the previous quarter, consumer spending grew at a robust pace, a sign that the economy will keep expanding.

That persistent strength has caused some Fed officials to speculate that the current level of interest rates may not be high enough to have the cooling effect on the economy and inflation that they need. If so, the Fed could even have to switch back to rate increases at some point.

“I continue to see the risk that at a future meeting we may need to increase (rates) further should progress on inflation stall or even reverse,” Michelle Bowman, a member of the Fed's Board of Governors, said in early April.

On Wednesday, the Fed may also announce that it's slowing the pace at which it unwinds one of its biggest COVID-era policies: Its purchase of several trillion dollars in Treasury securities and mortgage-backed bonds, an effort to stabilize financial markets and keep longer-term interest rates low.

The Fed is now allowing $95 billion of those securities to mature each month, without replacing them. Its holdings have fallen to about $7.4 trillion, down from $8.9 trillion in June 2022 when it began reducing them.

By cutting back its holdings, the Fed could contribute to keeping longer-term rates, including mortgage-rates, higher than they would be otherwise. That's because as it reduces its bond holdings, other buyers will have to buy the securities instead, and rates might have to rise to attract the needed buyers.

During its meeting in March, Fed official agreed to reduce the pace of its runoff to about $65 billion a month, according to the meeting minutes.

The Fed last reduced its balance sheet in 2019, and while doing so it inadvertently disrupted financial markets and caused short-term interest rates to spike that September. Its goal in slowing the pace at which it reduces its bond ownership is to avoid a similar market disruption by moving more methodically.