In an updated forecast, Fed officials now see core PCE inflation jumping to 3.1% by the end of the year from the current 2.5% rate in April. This is much higher than the 2.8% core rate forecast in March.

"No one holds these ... rate paths with a great deal of conviction, and everyone would agree that they're all going to be data-dependent," Powell said.

When the Fed reduces its rate, it often — though not always — leads to lower costs for consumer and business borrowing, including for mortgages, auto loans, and credit cards. Yet financial markets also influence the level of longer-term rates and can keep them elevated even if the Fed reduces the shorter-term rate it controls.