(NewsNation) — The Federal Reserve closed out 2022 by announcing another interest rate hike on Wednesday.
The Federal Reserve raised interest rates by half a percentage point in an ongoing effort to combat inflation, even as a recent report showed inflation was slowing. It’s a smaller increase than previous rate hikes.
At a news conference, Chairman Jerome Powell said the rate hike is part of the agency’s ongoing effort to bring inflation down to the 2 percent target, a marker well below the current rate. This latest interest rate rise is less than the previous increases, which reached 0.75 points.
Powell said the full effects of the Fed’s rapid tightening over the past year have not yet been felt, but he also noted that the Fed will likely raise rates in 2023. He acknowledged that rate hikes come with real hardship for people, but emphasized the goal. it is about long-term stability and maximum employment.
This latest rate increase brings the target interest rate to 4.25 to 4.5 percent. Cumulatively, the increases have led to much more expensive borrowing rates for consumers and businesses, in areas ranging from mortgages to auto and business loans. Concerns have grown that the Fed is raising rates so much in its campaign to curb inflation that it triggers a recession next year.
The more interest rates rise, the more more consumers will find themselves paying
if they take out a new mortgage or car loan. And for those who carry a balance on credit cards, where rates fluctuate with the economy, those debts will also accrue interest more quickly.
In order to curb inflation, Fed policies could change the outlook for workers and job seekers. The Fed has already signaled its intention to slow the labor market to curb inflation, in the hope of reducing wage growth, which has been growing at 5-6% per year to a growth rate of about 3, 5%, just above the 2% inflation target. .
The way the Fed will slow down a robust labor market to help bring down inflation could prove dangerous. Powell and other Fed officials have said they expect their rate increases to reduce consumer spending and job growth. Companies would then remove many of their job postings, easing the demand for labor. With less competition for workers, wages could start to grow more slowly.
When it comes to the agency’s plans for 2023, Powell said the agency will continue to make decisions on a meeting-by-meeting basis, with an emphasis on data and projections that can change over time.
Associated Press contributed to this report.