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Jerome Powell says the Fed may ease off 'jumbo' interest rate hikes, starting in December—here's what it means for you

Chair of the U.S. Federal Reserve Jerome Powell speaks at the Brookings Institution, November 30, 2022 in Washington, D.C.
Drew Angerer | Getty

After four consecutive "jumbo" rate hikes of 0.75 percentage point, Federal Reserve chair Jerome Powell suggested that the next rate hike in December will only be 0.50 percentage point, in a speech at The Brookings Institute on Wednesday.   

High interest rates — which are influenced by the central bank — cool down the economy by making the cost of borrowing expensive for both consumers and businesses. For consumers, this means it becomes harder to afford mortgages, loans and credit card debt.

That, in turn, discourages spending and helps shrink the economy.

A smaller rate hike could be good news for consumers, since the cost of borrowing wouldn't increase as much as it has recently.

"It makes sense to moderate the pace of our rate increases," Powell said, citing a recent drop in year-over-year inflation, as well as the lag effects to prices from "rapid" rate hikes in 2022.

Smaller rate hikes may come "as soon as the December meeting," Powell said, referring to when the Federal Open Market Committee is expected to announce its next federal funds rate hike.

The federal funds rate is a benchmark that banks use to determine the interest rate they offer businesses and consumers, and it's risen from a range of near-zero to 3.75 percentage points since March. It hasn't increased that quickly since 1980s.

Markets have responded well to the news, with the S&P Index up by nearly 2% just after Powell's speech.

However, Powell reaffirmed the Fed's commitment to a "sufficiently restrictive" monetary policy that will bring the rate of inflation down from a year-over-year rate of 7.7% to 2% "over time." 

"My colleagues and I are acutely aware that high inflation is imposing significant hardship, straining budgets and shrinking what paychecks will buy," he said. "This is especially painful for those least able to meet the higher costs of essentials like food, housing, and transportation."

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