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Price tags are displayed at a supermarket in New York on December 14. Inflation has eased recently, but more evidence is needed to show that price growth is slowing over the long term, Fed Chairman Powell said on Wednesday.

YUKI IWAMURA/AFP via Getty Images


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Price tags are displayed at a supermarket in New York on December 14. Inflation has eased recently, but more evidence is needed to show that price growth is slowing over the long term, Fed Chairman Powell said on Wednesday.

YUKI IWAMURA/AFP via Getty Images

Prices are still rising much faster than Americans were used to before the pandemic, although there are signs that the Federal Reserve’s dramatic moves to slow inflation may finally be working.

The central bank has made clear it will do everything it can to rein in inflation, raising interest rates for the seventh time in nine months on Wednesday.

Here are five milestones in the fight against inflation this week.

1. Inflation is falling

After reaching a four-decade high of 9% in June, annual inflation eased to 7.1% last month, according to the latest government estimate. It is the smallest annual price increase in 11 months.

Gasoline prices have plummeted and are now lower than they were before Russia invaded Ukraine. Prices for other goods, such as used cars and televisions, have fallen as pandemic disruptions in the supply chain are resolved. And prices related to travel, such as plane tickets and rental cars, have fallen as pent-up demand that followed the lockdowns has faded and travelers have become more price conscious.

2. Inflation is still too high

While some prices have fallen, the overall cost of living is still rising much faster than before the pandemic. At 7.1%, November’s inflation rate is well above the Federal Reserve’s 2% target. thats: also more than triple the rate of inflation in February 2020, before COVID-19 brought the economy to a standstill. Rising prices for services such as haircuts and restaurant meals are particularly worrisome because they are largely driven by labor costs, which are more sticky than volatile food and energy prices.

3. Interest rates are going up, but maybe not much higher

The Federal Reserve is raising interest rates at the fastest pace in decades as it tries to curb demand and keep prices under control. Rising interest rates have made it more expensive for people to get a home mortgage or car loan or pay off their credit card balance. The central bank’s benchmark interest rate jumped from near zero in March to 4.5% this week. But rates are now high enough to have begun to contain inflation, and the Fed has indicated it cannot push them much higher. This week’s rate hike was half a percentage point smaller than the last four. On average, Fed policymakers believe interest rates will rise by just over 5% next year.

Federal Reserve Board Chairman Jerome Powell takes questions during a news conference following a December 14 meeting of the Federal Open Market Committee. The Federal Reserve announced it would raise interest rates by 0.5 percentage points to 4.5.

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4. Interest rates aren’t coming down anytime soon

Just because the Fed has slowed the pace of rate hikes doesn’t mean borrowing costs are going down anytime soon.

“I wouldn’t see us considering a rate cut until the committee is confident that inflation is coming down to 2 percent on a sustained basis,” Fed Chairman Jerome Powell said Wednesday.

Fed policymakers do not foresee any rate cuts in 2023, and seven of the 19 members of the Fed’s rate-setting committee believe rates will be higher in late 2024. – two years away from now.

5. There is still a lot of uncertainty about where the economy is going

The Central Bank lowered the economic growth forecast for next year and raised the unemployment forecast. But Powell says there is considerable uncertainty.

“I don’t think anybody knows whether we’re going to have a recession or not, and if we do, whether it’s going to be deep or not,” he said on Wednesday.

Changes in the weather or the war in Ukraine can cause large price fluctuations at the gas station and grocery store. Faster or slower economic growth around the world can also cause fluctuations in crude oil and other commodity prices.

The price of the services depends a lot on what happens with the salary. That in turn depends on how many jobs the country adds each month, how many workers there are to fill those jobs, and how productive the workers are when they are working.

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