FILE – The seal of the Board of Governors of the United States Federal Reserve is displayed in the floor of the Marriner S. Eccles Federal Reserve Building in Washington, February 5, 2018. (AP Photo/Andrew Harnik, File)

WASHINGTON — Since Federal Reserve officials last met in July, the U.S. economy has moved in the direction they hoped: Inflation continues to slow, although more slowly than most Americans would like, while that growth remains solid and the labor market cools.

When they reconvene this week, policymakers will likely decide they can afford to wait and see if progress continues. As a result, they are almost sure to leave their key rate unchanged at the end of their meeting on Wednesday.

The slowdown in inflation suggests the Fed is nearing a peak in the series of rate hikes it unleashed in March last year – the fastest pace in four decades, a pace that has made borrowing much more expensive for consumers and businesses.

The attention of investors and Wall Street analysts is now turning to the future. Some clues could come from updated interest rate projections released each quarter and at a news conference with Chairman Jerome Powell.

Another rate hike this year will likely remain on the table, and Fed officials may plan fewer policy rate cuts next year than they did in June. That would underscore the Fed’s determination to keep rates high through next year as it works to return inflation to its 2% target.

Inflationary pressures showed signs of persisting in two government reports last week, adding some uncertainty to the outlook.

Claudia Sahm, a former Fed economist, said she believed a “soft landing,” in which the Fed managed to curb inflation without causing a recession, remained possible. But she warned that inflation could remain high for longer than the central bank expects. Or, she suggested, the cumulative effects of the Fed’s 11 rate hikes could ultimately tip the economy into recession.

“We’re at a point where things could conceivably go in many different directions,” Sahm said. “They’re going to respond as this unfolds.”

Still, most of the economic data over the past two months is moving in a positive direction. Inflation in June and July, excluding volatile food and energy prices, recorded its two lowest monthly figures in almost two years.

And there are increasing signs that the job market is no longer as robust as it once was, which helps keep inflation in check: the pace of hiring has moderated. The number of vacancies fell sharply in June and July. And the number of Americans who began looking for work surged. This has helped to better balance labor supply and demand and ease pressure on employers to raise wages to attract and retain workers, which can lead to them to raise prices to compensate for rising labor costs.

“It was a damn good week of data that we got last week,” Christopher Waller, a member of the Fed Board of Governors and close to Powell, said in an interview on CNBC this month. “This will allow us to proceed with caution. Nothing says we need to do anything imminently in the near future.

Powell’s speech late last month at the Fed’s annual central bankers’ conference in Jackson Hole, Wyoming, underscored his belief that the Fed can act in a measured manner.

“We will proceed cautiously,” he said, “to decide whether to tighten further or instead keep the policy rate constant and wait for further data.”

Last week’s inflation data, however, highlighted that even a soft landing may not be smooth sailing. On a monthly basis, consumer prices jumped 0.6 percent, the biggest increase in more than a year, and 3.7 percent from a year earlier, the second consecutive increase this year. kind.

The updated projections the Fed will release Wednesday will include estimates of where its policymakers think their policy rate is headed. In June, they planned two more hikes, and in July they imposed one, bringing their policy rate to around 5.4 percent, its highest level in 22 years.

Last week’s inflation numbers could lead the Fed to plan for additional rate hikes this year. And some economists say policymakers may plan for only one or two rate cuts in 2024, fewer than the three they were considering in June, in part to dispel Wall Street’s overly optimistic expectations for deeper rate cuts.

“They will want to hedge that risk,” said Jose Torres, chief economist at Interactive Brokers. “Market participants are simply a little too optimistic about inflation.”

Even some moderate members of the Fed’s interest rate committee have said recently that they may still have work to do to beat inflation.

“I think we will have to keep rates at restrictive levels for some time,” said Susan Collins, president of the Federal Reserve Bank of Boston. “And while we may be close to, or even reaching, the peak in policy rates, further tightening could be warranted, depending on the available data.”

But even more hawkish officials — those who generally favor higher rates to combat inflation — recognize that the Fed risks acting too aggressively and causing a recession. That represents a change from just a few months ago, when Fed hawks were more worried about not doing enough to fight inflation.

Lorie Logan, president of the Dallas Fed, said that “we need to proceed gradually, weighing the risk of inflation being too high against the risk of slowing the economy too much.”

This week’s Fed meeting comes as central banks around the world are mostly raising rates to combat inflation, which spiked after the pandemic hobbled global supply chains, causing shortages and rising prices. Inflation worsened after Russia’s invasion of Ukraine in February 2022, which sent prices of oil and other commodities soaring.

The European Central Bank last week raised its key rate for the 10th time to 4%, the highest level since the creation of the euro in 1999, while signaling that it could be its last rise. The Bank of England is also expected to raise its rate at its meeting on Thursday. The Bank of Japan, which meets Friday, is under less pressure to raise rates, although it has taken steps to allow Japanese long-term rates to rise.

Rising rates overseas have led to higher yields on U.S. Treasuries, needed to attract investors.

“Globally, monetary policy is on a tightening path, which is putting some upward pressure on rates in the United States,” William English, a former senior Fed official, said today. now a professor at the Yale School of Management.

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