Inflation has slowed. Now the Federal Reserve faces expectations for rate cuts

Chair Jerome Powell will enter this week's Federal Reserve meeting in a much more desirable position than he likely ever expected: Inflation is getting close to the Fed's target rate, the economy is still growing at a healthy pace, consumers keep spending and the unemployment rate is near a half-century low.

A year ago, most economists had envisioned a much darker outlook. As the Fed raised interest rates at the fastest pace in four decades to fight high inflation, most economists warned of a recession, possibly a painful one, with waves of layoffs and rising unemployment. Even the Fed's own economists had projected that the economy would sink into a recession in 2023.

The unexpectedly rosy picture — one that's sure to be subject to heated debate in the 2024 presidential race — may have left some Fed officials saddled by uncertainty. With their frameworks for assessing the economy upended by the pandemic and its aftermath, it's hard to know whether the economy's healthy conditions can endure.

“It almost feels like what we saw in the second half of last year was too good to be true,” said Nathan Sheets, chief global economist at Citi and a former Fed economist. “When things are too good to be true, you want to try to scratch the surface and say, how durable is this?”

Some Fed officials have raised similar questions and expressed caution about their next moves. When they last met in December, the Fed's 19 policymakers who participate in interest-rate decisions said they expected to cut their benchmark rate three times this year. Yet the timing of those rate cuts, which would lead to lower borrowing costs for consumers and businesses, remains uncertain.

Most economists say they expect the first rate cut to occur in May or