The Fed is expected to hold rates steady Wednesday. Investors will be probing for clues of future cuts.

The Federal Reserve is widely expected to hold interest rates steady Wednesday afternoon, but investors will be watching and listening for any signs of when the central bank could begin cutting.

Some are hoping to see a tweak in the language of the official statement from the central bank’s Federal Open Market Committee indicating that it no longer has a tightening bias, a precursor to lower rates in the months ahead.

Some Fed followers also expect central bank chair Jerome Powell to use his press conference following the FOMC meeting to prepare investors for an eventual loosening while also tempering market expectations for the number of cuts and how quickly they might happen.

Investors are betting on five cuts in 2024 and that they will begin in either March or May.

The Fed has signaled that it will cut rates three times this year, without saying when it will happen. Policymakers have also made it clear in the last month that they are not in a rush and still need more confirmation that inflation is dropping sustainably to the Fed’s 2% target.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

The good news for the Fed is that inflation continues to cool. The Fed’s favored inflation measure — the core Personal Consumption Expenditures index, which excludes volatile food and energy prices — clocked in at 2.9% for the month of December, down from 3.7% in September and 4.3% in June.

What was even more encouraging was that the core PCE inflation rate fell to 1.5% on a three-month annualized basis, its lowest level since late 2020. On a six-month basis, it was 1.9% for the second month in a row.

The challenge for the Fed is that economic growth continues to surprise to the upside, clocking in at 3.3% for the fourth quarter.

That has some questioning whether inflation could reaccelerate. The strong economic numbers could also cause the Fed to hold rates at current levels for longer, as could a run-up in the stock market that convinces consumers to spend more.

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The Fed last hiked rates in July 2023 to a 22-year high and has elected to keep interest rates unchanged in the past three policy meetings in a range of 5.25%-5.50%.

Investors became more aggressive about their rate bets in December when Powell used a press conference following the Fed’s last policy meeting to note that central bank officials had started the conversation of when to dial back policy restraints, calling it a “topic of discussion” and “a topic for us looking ahead.”

Investors began 2024 with a high degree of conviction that March was the time when cuts would start, fueling a rally in the stock market. They have since recalibrated that position, betting that May is more likely.

The Fed will announce its policy decision at 2 p.m. ET, followed by Powell’s press conference at 2:30 p.m. ET.

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