Fed continues its crackdown on inflation, pushing up interest rates again The Federal Reserve raised interest rates by half a percentage point Wednesday, which was a smaller increase than the four previous hikes.

The Fed continues its crackdown on inflation, pushing up interest rates again

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JUANA SUMMERS, HOST:

Americans are starting to see some relief from soaring prices, but that has not stopped the Federal Reserve from continuing its crackdown on inflation. Today, the Fed raised interest rates by another half percentage point. It's part of a drive to boost borrowing costs at the fastest pace in decades.

NPR's Scott Horsley is here to explain. Hey there.

SCOTT HORSLEY, BYLINE: Hi, Juana.

SUMMERS: So, Scott, yesterday, we learned the annual inflation in November was the lowest it's been in almost a year. So then why is the Fed still raising interest rates?

HORSLEY: Inflation has come down from a four-decade high of 9% back in June to just over 7% last month. That's the good news. The bad news is 7% is still about 3 1/2 times as high as inflation is supposed to be. You know, for decades before the pandemic, we were used to prices rising just 2% per year or less. And Fed Chairman Jerome Powell told reporters this afternoon he and his colleagues are determined to get back to that.

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JEROME POWELL: It boils down to how long do we think this process is going to take? And, of course, we welcome these better inflation reports for the last two months. They're very welcome. It's good to see progress. But let's just understand, we have a long ways to go to get back to price stability.

HORSLEY: This is the seventh time the Fed has raised interest rates in the last nine months. Its benchmark rate's gone from near zero in March to just under 4 1/2%. And it's likely to go a little bit higher next year. Today's rate hike was smaller than the last four. But Fed officials insist that doesn't mean they're any less committed to getting prices under control.

SUMMERS: So, Scott, what impact is that having on inflation and the broader economy?

HORSLEY: Higher borrowing costs make it more expensive to get a car loan or a home mortgage or to carry a balance on your credit card. And that is designed to tamp down consumer demand. We are seeing the effects of that already in some of the more sensitive parts of the economy, like the housing market. And over time, those effects are likely to spread. The central bank is now forecasting slower economic growth next year and somewhat higher unemployment. But Powell stressed the job market is still really strong, so he's hopeful that we're not going to see a huge number of job cuts.

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POWELL: The reports we get from the field are that companies are very reluctant to lay people off other than the tech companies, which is, you know, a story unto itself. Generally, companies want to hold on to the workers they have because it's been very, very hard to hire. That doesn't sound like a labor market where a lot of people will need to be put out of work.

HORSLEY: In fact, Powell says the job market is too strong right now, and that's pushing up wages at a rapid rate. Now, ordinarily, we think of wage gains as being a good thing, but they can feed into inflation. And it's not in anybody's interest to get a 5% raise on paper only to have it gobbled up by 7% inflation.

SUMMERS: Yeah, no kidding. So one could call 2022 the year of high inflation. So tell us, what is in store for 2023?

HORSLEY: We are definitely seeing some progress in some areas. Gasoline prices have come down. The price of used cars and other products have come down as we started to work out some of those pandemic kinks in the supply chain. What really worries Powell and his colleagues now is the rising price of services, and that's largely driven by labor costs, which tend to be sticky.

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POWELL: The goods inflation has turned pretty quickly now. After not turning at all for a year and a half, now it seems to be turning. But there's an expectation, really, that the services inflation will not move down so quickly so that we may have to raise rates higher.

HORSLEY: Just to give you a couple examples, the price of haircuts is up nearly 7% in the last 12 months. The price of dry cleaning is up nearly 8%. And that's important because services other than housing and energy account for about a quarter of all consumer spending.

SUMMERS: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome.

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