Split image of  Federal Reserve logo and Jerome Powell with money background
Federal Reserve; Shutterstock

Fed raises rates again, but eases pace 

With inflation showing early signs of cooling, the Fed announced a half-point rate increase — a quarter point less than its last four hikes.

December 14, 2022
3 minutes

Key points:

  • The Fed’s goal is to use the rate hikes to drive down inflation, which hovered at 7% through November.
  • Higher costs for home mortgages have followed the Fed’s benchmark rate increases this year.
  • “No one knows with any certainty where the economy will be a year from now," Fed chair Powell said. "We will continue to make our decisions meeting by meeting.”

The Federal Reserve has raised its benchmark borrowing rate another half-point — reflecting a slower pace after four straight three-quarter-point increases since June.

The Federal Open Market Committee, in a unanimous vote, agreed Wednesday to hike rates again but to shrink the size of increase, in an attempt to control inflation. The benchmark rate is now at its highest level in 15 years.

"Without price stability, the economy does not work for anyone with market conditions that benefit all," Powell said at a press conference after the announcement. 

Wednesday's announcement by the Fed marked the seventh time in 2022 it has raised interest rates, with the last four at .75 percent. Powell said that ongoing increases likely will continue in 2023. 

"Ongoing interest rate increases will be appropriate to return inflation to 2% over time. Restoring price stability means maintaining a restrictive monetary stance for some time," Powell said.

Inflation was at 7.1% in November, down from 7.7% the previous month, the U.S. Bureau of Labor Statistics reported. Inflation is down from a 40-year high in June of more than 9%, but "remains elevated, reflecting supply and demand imbalances," the Fed said in a prepared statement prior to the press conference.

"No one knows with any certainty where the economy will be a year from now," Powell said. "We will continue to make our decisions meeting by meeting. Our overarching focus is to bring inflation back down… We will stay the course until the job is done."

The Fed chair noted that growth in consumer spending has slowed year-over-year, and "activity in the housing sector has weakened significantly." He said that the labor market remains "extremely tight."

The Fed's increases in the benchmark borrowing rate have driven up interest costs for borrowers buying homes in 2022. Last week, the average rate for a 30-year fixed mortgage was at 6.33% according to Freddie Mac. Interest costs for home mortgages are at their highest level in 20 years, Bankrate reported.

"The [Fed's] interest rate mantra for 2023 is shaping up as 'higher for longer,'" Greg McBride, chief financial analyst at Bankrate, said in a prepared statement. 

"Inflation is public enemy No. 1," said former Fed vice chair Richard Clarida.

Costs for housing, communication and recreation rose the most month-over-month, based on the U.S. Labor Department's Consumer Price Index, which tracks prices that consumers pay for goods and services. But costs for used vehicles, energy and health decreased year-over-year in November, according to the index. Gasoline prices fell for the fourth time since June.

"The data we've received for October and November show a welcome reduction in the monthly pace of price increases," Powell said. "This report is in line with what we have been expecting and hoping for. This gives us greater confidence in our forecast."

Get the latest real estate news delivered to your inbox.