The Federal Reserve slowed its pace of interest rate hikes Wednesday, unveiling a smaller increase to the benchmark lending rate on cooling inflation while signaling the battle to rein in costs is not over.
The quarter-point rise takes the rate to a target range of 4.50-4.75%, said the Fed, adding that "inflation has eased somewhat but remains elevated."
Most recently, the Fed raised the key interest rate by a substantial 0.75 percentage points several times - but slowed the pace at the end of last year with a rate hike of 0.5 percentage points.
Recent data show that high inflation in the world's largest economy is on the retreat.
The Fed had been particularly aggressive in tackling high inflation — which at times was higher than it had been for decades — in recent months, raising interest rates at a rapid pace.
Most recently, the inflation rate in the U.S. continued to fall - a sign of the first successes of the strict monetary policy. In December, consumer prices rose by 6.5% compared to the same month last year. In November, the rate had been 7.1%. It was the sixth decline in the inflation rate in a row - but it is still high.
Fed Chairperson Jerome Powell had already made clear in December that he would stay the course until the job is done. In December, the Fed predicted that it would raise interest rates to just over 5% this year.
The International Monetary Fund (IMF) also stressed in its latest economic forecast that central banks should not let up in their fight against high inflation, despite initial successes. The battle has not yet been won, the IMF said.
One core focus for Fed chief Powell is likely to remain the strong labor market in the U.S. Unemployment fell surprisingly at the end of last year, reaching 3.5% in December, its lowest level in almost three years.
While this is good news in itself, if there is a shortage of workers in key industries, it can spur upward pressure on prices. There is a risk of a wage-price spiral. However, wages have recently risen less than expected.
