WASHINGTON (NEWSnet/AP) — The Federal Reserve held interest rates at a two-decade high on Wednesday, while leaving the door open for rate cuts by the end of the year.

The Federal Reserve said greater progress has been made in reducing inflation to its 2% target, a sign that the central bank is moving closer toward cutting its key interest rate for the first time in four years.

In a statement issued after it concluded its two-day meeting, the Fed also said that “job gains have moderated” and acknowledged that the unemployment rate has risen.

Congress requires the Fed to pursue stable prices and maximum employment, and the statement said the central bank is “attentive to the risks” to both goals. This is a change from the last policy statement, which focused exclusively on combatting inflation.

Fed policymakers chose to keep their key rate at a 23-year high of 5.3%, where rates have remained since last July

Before the Fed’s decision, financial market traders had priced in 100% odds that the central bank will reduce its benchmark rate at its Sept. 17-18 meeting, according to futures markets. The Fed typically seeks to avoid surprising investors with its rate decisions.

The Fed aims to strike a delicate balance as it wants to keep rates high enough for long enough to quell inflation, which has has decreased to 2.5% from a peak of 7.1% two years ago, based on the Fed's preferred measure. But it also wants to avoid keeping borrowing costs so high that it triggers a recession. So far, it is on track for a so-called “soft landing,” in which inflation falls to 2% without a recession.

In the latest piece of good news on price increases, last Friday the government said that yearly inflation fell to 2.5% in July, according to the Fed’s preferred inflation measure. That is down from 2.6% the previous month and the lowest since February 2021, when inflation was just starting to accelerate.

At the same time, the unemployment rate has risen by nearly a half-percentage point this year to a still-low 4.1% and hiring has slowed. Powell and other Fed officials have highlighted they are increasingly focused on the risk that the job market could falter, another reason markets expect rate cuts soon.

The government will issue the latest jobs numbers this Friday, and economists forecast that it will say employers added 175,000 jobs in July, while the unemployment rate remained 4.1%.

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