Federal Reserve raises interest rates by half-point

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(NewsNation) — The Federal Reserve closed out 2022 by announcing another interest rate hike on Wednesday.

The Fed hiked interest rates by half a percentage point in an ongoing effort to combat inflation, even as a recent report showed inflation slowing. It’s a smaller increase than previous rate hikes.

In a press conference, Chair Jerome Powell said the rate hike is part of the agency’s ongoing effort to reduce inflation to the goal of 2 percent, a marker far below the current rate. This latest rate hike is lower than previous hikes, which came in at .75 points.

Powell said the full effects of the Federal Reserve’s rapid tightening over the past year have yet to be felt but also signaled that the Fed will likely be raising rates in 2023. He acknowledged the rate hikes come with real hardship for people, but stressed the goal is about long-term stability and maximum employment.

This latest rate hike brings the target interest rate to 4.25 to 4.5 percent. Cumulatively, the hikes have led to much costlier borrowing rates for consumers as well as companies, in areas ranging from mortgages to auto and business loans. Worries have grown that the Fed is raising rates so much in its drive to curb inflation that it will trigger a recession next year.

The more interest rates rise, the 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 accrue interest more quickly, too.

In order to curb inflation, the Fed’s policies could change the outlook for job seekers and workers. The Fed has already stated an intention to slow the job market to curb inflation, with the hope of reducing wage growth, which has been growing 5-6% per year to a growth rate around 3.5%, just above the inflation goal of 2%.

How the Fed will slow a robust labor market to help bring down inflation could prove perilous. Powell and other Fed officials have said they hope their rate hikes will slow consumer spending and job growth. Businesses would then remove many of their job openings, easing the demand for labor. With less competition for workers, wages could begin to grow more slowly.

When it comes to the agency’s plans for 2023, Powell said the agency will continue to make decisions meeting by meeting, with an emphasis on data and projections that may change over time.

The Associated Press contributed to this report.

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