This story has been corrected.
With high inflation beginning to ease, the Federal Reserve Bank made a smaller increase to its benchmark interest rates Wednesday, raising it by 0.25 percentage points to a range of 4.5% to 4.75%. That’s the highest level since late 2007.
The increase follows seven interest rate hikes last year. The previous increase in December was 0.50 points, which was less than the four consecutive rate hikes of 0.75 points from June through November.
U.S. prices fell by 0.1% monthly in December, but the consumer price index remained elevated by 6.5% over a 12-month period. For this reason, the Fed foresees further rate hikes at its next interest rate setting meeting in March.
Some economists fear that continued rate increases will spur the onset of a recession. However, the International Monetary Fund recently revised its economic outlook for 2023, showing some chance of a minor economic downturn, but an overall growth of global output by 2.9% in 2023.
Additionally, the labor market remained resilient in December, with the U.S. economy adding 223,000 non-farm jobs. U.S. unemployment edged downward to 3.5% from 3.6% in November.
The strength of the jobs market coupled with lingering inflation led Fed Chair Jerome Powell to signal that the fight to subdue rising prices was not over yet.
“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run,” Powell said at a news conference following the interest rate increase on Wednesday.
“The historical record cautions strongly against prematurely loosening policy.” Powell said. “We will stay the course, until the job is done.”
Stock markets reacted positively to the smaller rate increase, with the S&P 500 gaining 1.05% at the close of markets Wednesday. The Nasdaq composite jumped 2%, and the Dow Jones Industrial Average erased losses from earlier in the day to end 0.02% higher.
This story was updated to correct the new range of interest rates.
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