Federal Reserve keeps interest rates steady. But cuts aren’t far off.

The Federal Reserve is almost ready to trim interest rates for the first time since the pandemic began, with a long-awaited rate cut probably coming as soon as September - but officials are willing to wait a bit more just to be sure.

That was the message Wednesday from Fed Chair Jerome H. Powell, who stopped just short of saying the central bank was ready to pare back borrowing costs but made clear that progress was being made. For some time, the overall sense from the Fed has been that it needs a little more time and information to cement confidence that inflation is easing and the job market is growing at a more sustainable pace. Now, the growing question from Wall Street and households alike is: What are you waiting for?

“It’s going to be the inflation data. It’s going to be the employment data,” Powell said at the end of the Fed’s two-day policy meeting, where officials left rates high and unchanged for a year. “It’s going to be the balance of risks as we see it. It’s going to be the totality of all of that that help us make this decision.”

Major stock indexes flashed green throughout the day, bolstered by the possibility of a September cut.

Preston Mui, senior economist at Employ America, a left-leaning think tank, said “big differences in time are made up of smaller differences” that will eventually tip the Fed toward a cut. He noted that typically, there are about six weeks between Fed meetings, with only so many data releases falling in between.

But at the end of the summer, the Fed goes on a longer stretch from July to September, with an annual August conference in between. Even though Powell all but said September could be the moment, there will be a clearer picture on inflation and the labor market by the time officials convene again, Mui said.

“It could end up being the case that things look a lot different in September than they do now,” Mui said.

The Fed entered 2024 hopeful that its fight to control inflation would keep on churning, after encouraging reports in late 2023. But the first few months of the year handed central bankers a brutal surprise, with hotter-than-expected price data pushing rate cuts back. Initially, economists and officials questioned whether something more worrisome was bubbling up and keeping inflation from reaching a more normal 2%.

But Powell noted that the recent string of data is even “a little better than what we saw last year.” He described “a broader disinflation” where prices are cooling across the board, most notably in housing, which makes up a major share of Americans’ budgets and took far longer to simmer down than expected.

“It’s a lot better,” Powell said. “Now, the job is not done. I want to stress that. And we’re committed to getting inflation sustainably down to 2%. But we need to take note of that progress.”

The practiced and staid Fed chief generally holds back from forecasting too far into the future. But some Fed watchers are antsy for the first cut. They argue rates that stay too high for too long can backfire, causing cracks in the labor market if employers pull back or even lay people off. Those signs haven’t emerged yet. But officials have acknowledged that they have to balance their inflation goals with protecting the labor market more evenly than they have over the past few years.

“Go too soon and you undermine progress on inflation,” Powell said. “Wait too long or don’t go fast enough, and you put at risk the recovery. And so we have to balance those two things … It’s a rough balance.”

The last time officials convened, in June, they penciled in just one rate cut before the end of the year, down from three a few months before that. But Fed officials are taking their time because they’ve been thwarted by the economy’s unexpected turns before. Crucially, the Fed was slow to react when prices surged in the wake of the coronavirus pandemic - a mistake that forced the central bank to hoist borrowing costs in a rush to catch up.

Through it all, though, the Fed has managed a rare feat: bringing inflation down without causing a recession or blow to the job market. (The Fed’s preferred inflation gauge clocked in at 2.5% in June.) The economy grew at a surprisingly strong 2.8% in the second quarter, capping two years of solid expansion. The extreme labor shortages from the pandemic have also faded away, but employers are still hiring.

In the backdrop is the presidential election, where Republicans and Democrats are campaigning on vastly different plans for the economy. While the Fed is loath to get involved in politics, it doesn’t operate in a vacuum. Many economists, for example, warn that former president Donald Trump’s policies on higher tariffs and mass deportations would worsen inflation. If he wins in November and his agenda becomes law, the Fed’s inflation fight could be upended.

Powell has made an Olympic sport out of not commenting on the election, and he shut down questions about the campaigns. Meanwhile, on Wednesday afternoon, Republican nominee Donald Trump told the National Association of Black Journalists that, if elected, he would “bring interest rates down” to ease grocery prices. (The president does not set interest rates, and the Fed closely guards its ability to set policy independent from the rest of Washington.)

For the economy as a whole, it might not matter much if the Fed cuts in July versus September. Rather, it’s about the signal. Speaking to The Washington Post this month, Boston Fed President Susan Collins noted how bumpy the inflation fight has been. That makes it especially important that “we really stay the course” while keeping a close eye on any other emerging risks.

“From my perspective, I have gained some confidence with the last three months,” Collins said on inflation. She added: “I think we’re not quite there yet.”

Eric Rosengren, who ran the Boston Fed from 2007 to 2021, said it was too soon to know if the Fed will cut more than once - largely because of the presidential election. After September, the Fed’s remaining meetings for 2024 are the week of the election in November and then again in December. To avoid political backlash, the Fed would probably steer clear of a rate cut in November. But by December, the economy may be headed in different directions depending on who wins.

“We have two candidates who have very different fiscal policies, and at least some of those fiscal policies could start changing the forecast,” Rosengren said. “So I think the committee probably is going to want to be pretty neutral on what they do after September.”