Fed policymakers have finally admitted that multiple interest rate cuts probably won’t happen this year.

Following its June 11-12 meeting, the Fed voted to hold rates steady at 5.5% for the seventh consecutive time. But unlike previous meetings, the Fed dialed back its forecast to only one rate cut in 2024.

That’s a notable shift from just three months ago when the Fed held onto expectations of three rate cuts despite evidence of mounting inflation.

Since then, the evidence for stubborn inflation has become too big to ignore. Now, policymakers expect inflation to average 2.6% this year, higher than their previous estimate of 2.4%.

They also revised their forecast for core PCE—the Fed’s preferred measure of inflation—to 2.8% from 2.6% previously.

The change in direction reflects the Fed’s lack of confidence in taming inflation. “We’re looking for something that gives us confidence that inflation is moving sustainably down,” Fed Chair Jerome Powell said in a press conference.

In order to lower rates, “we’ll need to see more good data,” Powell said.

Ironically, Powell used a variation of the word “confidence” 20 times in his press conference, even though it’s clear the Fed isn’t confident about its progress on inflation.

Economists say it will be many more months, at least, before the Fed even considers the possibility of rate cuts.

Not repeating the same mistake

The Fed’s lackluster performance in forecasting inflation isn’t limited to the past few months.

During the historic run-up in inflation, the Fed held rates near zero and lectured Americans that rising prices were only “transitory.” But as it turned out shortly after, they weren't.

Contrary to central banker's assurances, inflation rose to 9.1%, and the Fed’s credibility hasn’t been the same.

“After an event like that, you’re going to be more worried about your credibility. You don’t want to make the same mistake twice,” Jan Hatzius, chief economist at Goldman Sachs, told The Wall Street Journal.

Former Fed insiders say the central bank is facing a crisis of credibility because it’s acting against its desire to lower interest rates.

“I think they are looking for an opportunity to lower the policy rate, but obviously, the wind has been blowing in the wrong direction,” said former St. Louis Fed president James Bullard, who now serves as the dean of the Daniels School of Business at Purdue University.

Before the latest FOMC meeting, former Kansas City Fed President Esther George remarked that one rate cut is all the central bank will be able to muster this year.

Some officials will debate the merits of multiple rate cuts but will ultimately err on the side of caution, she said.

According to David Russell, global head of market strategy at TradeStation, the Fed believes it has enough time to let inflation cool without tipping the economy into a recession. Cutting rates is still the plan, but timing is key.

“Goldilocks is emerging, but policymakers don’t want to jinx it,” he said, referring to an economy that’s not too weak or too strong but just enough to slow inflation.