A fresh set of economic projections showed the median number of Fed officials expect just one cut by the end of 2024. But there’s clearly debate within the central bank’s 19-member policymaking body: Eight officials penciled in two cuts, and four expect no cuts at all. In a sharp pivot from just a few months ago, no one expected three cuts.

Policymakers were also slightly more pessimistic than they had been on inflation and now expect their preferred inflation gauge to end the year at 2.6 percent, up from 2.4 percent. They held forecasts for overall growth (2.1 percent) and the unemployment rate (4 percent) steady.

“The economic outlook is uncertain, and the [Fed] remains highly attentive to inflation risks,” officials wrote in a statement.

The Fed has been putting the economy under pressure through higher interest rates since March 2022, trying to control prices that grew at the fastest pace in four decades. The latest snapshot from the Bureau of Labor Statistics earlier Wednesday showed prices rose 3.3 percent in the year ending in May and that prices were flat month over month for the first time in two years. A narrower measure of inflation that strips out volatile categories like food and energy also came in slower than it has for months.

The inflation report was released just hours before Fed leaders wrapped up their two-day policy meeting, but officials weren’t expected to react right away. They haven’t changed their benchmark interest rate since July, instead leaving borrowing costs between 5.25 and 5.5 percent — the steepest rate in more than 20 years.

What Wall Street, Washington and business and households around the country will watch eagerly is where Fed policymakers think the economy is headed. Financial markets shot up early Wednesday on the inflation report, then briefly gave up some ground after the Fed’s statement.

When the year started, the central bank was looking at three rate cuts in 2024. But because inflation came in hotter than expected from January to March, analysts had been betting on only one or two cuts. The Fed doesn’t set policy based on individual reports, but it had been itching for this kind of encouraging data to feel confident that inflation won’t reignite if officials start to cut.

“It will be interesting to see what signal they take from the data,” said Bill English, former head of the Fed’s Division of Monetary Affairs who is now at the Yale School of Management. “‘Why’ are they seeing less easing will be as important as ‘how much’ less?”

Part of the Fed’s challenge is understanding why inflation is falling slower than it did last year — and confronting the limits of monetary policy in slowing the entire economy. Officials have made major progress since inflation peaked at an annual rate of 9.1 percent two years ago. But much of that drop has to do with healing supply chains and falling energy prices, which helped tame consumer prices on anything from couches to gasoline.

Crucially, housing costs continue to be a main driver of overall inflation, as has been the case for more than a year. A key rent gauge carried on a streak of rising 0.4 percent over the previous month. Overall shelter costs were up 5.4 percent over the previous year. Many real-time measures of rent costs show rents easing considerably, or even falling. But those shifts have taken way longer than expected to show up in official data, frustrating Fed officials and economists who fear the rental figures are keeping overall inflation artificially high.

Medical care costs also rose slightly more in May than in April. Costs for prescription drugs rose 2.1 percent, and hospital services increased 0.5 percent.

Yet energy costs index fell 2 percent over the month, led by a 3.6 percent drop in the gas index. Airfare also fell 3.6 percent, following a 0.8-percent decrease in April.

Key to leaders’ assessment is whether they think inflation is steadily falling, or whether the unwanted surprises from the beginning of the year signal something more lasting and worrisome. Some economists speculate that seasonal glitches that often interfere with January data — for example, the resetting of annual insurance costs — seeped into the entire first quarter and interfered with the central bank’s read on inflation.

But others wonder whether price increases are simply sticking. Last month, Fed governor Christopher Waller said progress “may be a lot slower than we saw at the end of last year,” when inflation came down markedly.

“Whatever the factors were in the first three months, they haven’t completely disappeared,” Waller said at the Peterson Institute for International Economics. “There might be something much more fundamental going on than seasonal. I don’t know exactly what that would be. We’re still all trying to figure out what it is.”

Still, even with inflation too high, the economy is roaring. Employers added a whopping 272,000 jobs in May. Wages continue to outpace inflation, and there’s no recession in sight. Yet the sting of high prices has still left businesses, workers and families with the sense that the economy isn’t working for them.

That disconnect is proving to be a major issue for President Biden’s reelection campaign, as he tries to tout the economic turnaround since the depths of the pandemic. In a statement Wednesday, Biden said the report showed “welcome progress” but noted “many families are feeling squeezed by the cost of living.” He touted his administration’s moves to address costs for housing, prescription drugs and groceries.

Former president Donald Trump, meanwhile, has seized on high inflation and subsequent interest rate hikes to argue Americans are suffering under the weight of steep mortgage rates and sticker shock for the basics, even though economists estimate that many of his proposals would send inflation even higher.

For its part, the Fed tries hard to steer clear of politics, and it stakes much of its reputation on an independence from the rest of Washington. But if officials still need a few more months to feel comfortable cutting rates, they could end up making an initial move right before the election. This week, top Democrats on the Senate and House budget committees called for the Fed to lower rates, raising concerns that holding out could jeopardize the strong job market.

Officials insist they will make decisions only as the data unfold.

“It’s hard enough to get the economics right here,” Powell said last month. “These are difficult things, and if, if we were to take on a whole, another, set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right.”