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The Fed’s slower interest rate hike this month is good news for Americans looking to buy a car, house, or use their credit card in 2023

Fed PowellFederal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting, Wednesday, Nov. 2, 2022, in Washington. (AP Photo/Patrick Semansky)

Patrick Semansky/AP Photo

  • The Federal Reserve raised interest rates by 0.5 percentage points on Wednesday.
  • This marked a decrease from the previous four consecutive 0.75 percentage point hikes. 
  • The Fed appears to be slowing down its aggressive efforts to fight inflation. 

The nation’s central bank raised interest rates once again — but appears to be slowing down its efforts to fight inflation.

On Wednesday, the Federal Reserve announced during it Federal Open Market Committee (FOMC) meeting that it would be hiking interest rates by 0.5 percentage points, signaling a slowdown from its past four increases of 0.75 percentage points. 

This comes after the US economy received some promising data on where high prices are headed — the Consumer Price Index, which measures inflation, rose 7.1% year-over-year in November, which marked a decrease from the October reading of 7.7%. While inflation levels are still undoubtedly high, the Fed appeared to respond to the positive direction the economy is heading by slowing its aggressive interest rate hikes. 

The lower hike is good news for consumers — the super-fast pace of rate hikes earlier this year quickly made it more expensive to borrow money, so those costs moving up at a slower rate will make buying a house, car, or using a credit card next year less painful for Americans than if the Fed kept up their aggressive stance. 

Still, the country is far from achieving the Fed’s goal of reaching a 2% inflation level — where the economy was pre-pandemic — and Federal Reserve Chair Jerome Powell previously indicated during a Brookings Institution event that interest rate hikes will persist so long as prices remain high.

“The timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level,” Powell said. 

“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” he added. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

Still, the question of whether Americans will find themselves in a recession next year looms. Both Powell and Treasury Secretary Janet Yellen have previously said that they believe avoiding an economic downturn is possible while still managing to combat inflation, known as a soft landing. 

“There’s a risk of a recession,” Yellen told 6o Minutes last weekend. “But it certainly isn’t, in my view, something that is necessary to bring inflation down.”

But some Democratic lawmakers like Massachusetts Sen. Elizabeth Warren have cautioned the Fed on numerous occasions that continuing to raise interest rates could send Americans into a recession and bring on a stream of job losses. During a speech last month, Warren said “there is a big difference between landing a plane and crashing it.”

Biden and other administration officials have maintained confidence that things will be looking a lot better for consumers by the end of 2023. 

“I hope by the end of next year we’re much closer, but I can’t make that prediction,” Biden said on Tuesday, referring to prices returning to normal. “I just — I’m convinced they’re not going to go up.  I’m convinced they’re going to continue to go down.”

Read the original article on Business Insider