The Federal Reserve said on Wednesday it would hold interest rates steady and that the central bank would not pivot to slashing borrowing costs until it is more confident that inflation has been defeated.

Why it matters: The Fed is considering when to begin reversing its aggressive hiking campaign in recent years, but even after a dramatic slowdown in inflation, officials appear to want more evidence of cooling price pressures.

Driving the news: The Fed kept interest rates at a range of 5.25% to 5.5% for the fourth-straight policy meeting.

• Officials, however, removed language from the statement that had suggested it would consider raising rates further.
• The statement also has a new sentence that suggests any cut might not be imminent.

What they're saying: "We believe that our policy rate is likely at its peak for this tightening cycle, and that if the economy evolves broadly as expected it will likely be appropriate to begin dialing back policy restraint at some point this year," Chair Jerome Powell said in a news conference following the meeting.

• "But the economy has surprised forecasters in many ways since the pandemic and the ongoing progress toward our 2% inflation objective is not assured," Powell said.
• The Fed's policy statement says that the central bank's policy committee "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent," the level of inflation it targets.

These are significant changes — one solidifying that the Fed is considering easing policy, or rate cuts, but only after more evidence that inflation is on a sustained path to its target.

Of note: The Fed also now notes in the statement that the "risks to achieving its employment and inflation goals are moving better into balance."

• It's a sign that the Fed is not only concerned about defeating inflation but keeping the labor market healthy too.

In the news conference, Powell said that strong economic growth alone would not preclude rate cuts.

• "We look at stronger growth. We don't look at it as a problem," Powell said. "I think at this point we want to see strong growth. We want to see a strong labor market… we're looking for inflation to come down as it has been coming down for the last six months."

The backdrop: Recent inflation data points to a significant cooldown in price pressures, a development that the Fed has welcomed. But it has been hesitant to say the war on inflation has been fully won.

• Still, economic projects released in December showed that most Fed officials expect to cut rates at least three times this year.
• Financial markets are betting the first of those cuts may come as soon as March, but officials have previously said they want to see sustained proof that inflation is receding.
• The statement released Wednesday also appears to muddy that timeline.

The big picture: High interest rates seemed to have had a muted effect on the economy so far — a surprise to many economists (even those at the Fed) who had expected an economic downturn would be necessary to bring inflation down.

• Instead, the economy boomed in the final quarter of 2023, while employment remains healthy.

Of note: The Fed on Wednesday also announced that it would extend tougher trading rules to more staff.

• It will "tighten restrictions on all staff with access to confidential" information relating to monetary policy.

Editor's note: This story has been updated with additional developments.