The Federal Reserve signaled it was thinking about when to lower interest rates but hinted a cut wasn’t imminent when it held rates steady at its first policy meeting of the year on Wednesday.

The central bank held its benchmark federal-funds rate steady in a range between 5.25% and 5.5%, the highest level in more than two decades, as it awaits more convincing evidence that a sharp downturn in inflation at the end of last year will endure.

“It’s a highly consequential decision to start the process” of lowering interest rates “and we want to get that right,” said Fed Chair Jerome Powell at a news conference. “We’ve made a lot of progress on inflation. We just want to make sure that we do get the job done in a sustainable way.”

Stock indexes ended lower Wednesday, with the S&P 500 down 79.32 points, or 1.6%. The index, which on Monday closed at an all-time high, registered its biggest decline since September. Yields on the 10-year Treasury note declined 0.091 percentage point to close at 3.965% after New York Community Bancorp reported a loss and slashed its dividend, igniting new jitters about the health of regional lenders.

For most of January, investors in interest-rate futures markets have placed roughly 50% odds that the central bank would cut rates at its next meeting, March 19-20. But Powell volunteered on Wednesday that officials didn’t think a March cut was likely.

“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting” to justify a rate cut, “but that’s to be seen,” he said.

The market-based probability of a March cut fell to around 35% on Wednesday afternoon, according to CME Group. “March is not the base case and in order for it to be a truly live meeting, the data has got to disappoint materially,” said Michael de Pass, global head of rates trading at Citadel Securities.

Markets have rallied notably over the past two months as investors have anticipated cooler inflation would allow the central bank to dial back rate hikes this year. Investors expect the Fed to cut rates by nearly 1.5 percentage points this year, or the equivalent of a quarter-point rate cut at six of the Fed’s seven meetings later this year.

At their prior meeting in December, most officials anticipated they could cut rates three times this year if inflation continued to decline gradually to its 2% target and economic growth was steady but unspectacular. They only issue such forecasts every other meeting.

The fed-funds rate influences other borrowing costs throughout the economy, such as on mortgages, credit cards and business loans. The 30-year fixed-rate mortgage stood at 6.78% last week, down from a high of 7.9% last October, the Mortgage Bankers Association said Wednesday.

The Fed jettisoned guidance in its heavily deliberated policy statement that since July, when officials last raised rates, has suggested it was more likely to raise rates than to lower them. In its place, officials adopted a neutral view by noting that the risks to achieving its goals of healthy labor markets and low inflation “are moving into better balance.”

The Fed doesn’t expect to lower rates “until it has gained greater confidence that inflation is moving sustainably toward 2%,” the statement said.

Powell said Wednesday the Fed might be slower to cut rates or drag out the process if inflation proved to be more persistent. It could cut rates sooner and faster if the labor market weakened or there was “very, very persuasive lower inflation,” he said.

The Fed has held its benchmark federal-funds rate steady at four consecutive policy meetings. Officials began raising rates from near zero in March 2022 and lifted them at the fastest pace in 40 years to combat inflation that also soared to a four-decade high.

One year ago, many economists anticipated that Fed officials would have to raise rates to levels that would create enough slack—such as unemployed workers and idled factories—to significantly slow inflation. But healed supply chains and an influx of workers into the labor force curbed wage and price increases in the second half of last year without causing broad weakness.

Economic growth has been stronger in recent months than Fed officials anticipated, which could make some of them cautious about declaring victory on inflation. But price pressures and wage growth have cooled even with better growth, suggesting stronger growth might not necessarily be a headwind to further cooling of inflation.

Wage growth slowed at the end of 2023, the Labor Department said Wednesday. The employment-cost index, which the Fed considers the most comprehensive measure of pay growth, showed private-sector pay rose 4.3% in the fourth quarter from a year earlier, the mildest gain in 2½ years.

Inflation excluding volatile food and energy prices fell to 2.9% in December from a year earlier, using the Fed’s preferred gauge. The six-month annualized inflation rate fell below 1.9% during the second half of the year, down from 4% in the first half.

The improvement has occurred faster than many officials anticipated, leading some to question the economy’s turn of fortune.

“We want to see more good data. It’s not that we’re looking for better data,” Powell said. “Are the last six months flattered by factors that are one-off factors that won’t repeat themselves? We don’t think so. But that’s the question…we have to ask.”

Central-bank officials are trying to balance two risks: One is that they move too slowly to ease policy and the economy crumples under the weight of higher interest rates, causing millions of people to lose their jobs. The other is that they ease too much, too soon, allowing inflation to reaccelerate or become entrenched at a level above their 2% goal.

The Fed typically cuts interest rates because economic activity is slowing sharply, but officials are beginning to consider scenarios under which they could lower rates even with solid growth. That is because as inflation declines, inflation-adjusted or “real” rates will rise if nominal rates are held steady.

“The current stance of policy is no longer warranted by the inflation backdrop. The prudent policy stance is to return to a neutral setting,” in which rates neither spur nor slow economic activity, said Daleep Singh, a former executive at the New York Fed who is now chief global economist at PGIM Fixed Income.

Some economists have said the strength of consumer spending and business investment suggests current interest rates may not be as restrictive as they would have been in the past. But Singh said even though the neutral rate of interest has likely moved up, from around 2.5% last decade to 3.5% this decade, nominal rates are still too high given how inflation has fallen.

“There are potentially serious costs and little benefit to waiting. The longer they wait, the larger the risks will grow,” he said.