JUST IN: The Fed raised interest rates by the smallest increase in 11 months, a quarter percentage point, signaling that policymakers are taking a more cautious approach to taming inflation.
The gradual decline in both prices and wages is exactly what the Fed has been trying to achieve.
While the price of some goods — like new and used cars — has started to fall, the Fed is concerned that the price of labor-intensive services may continue to climb. That would make it harder to get inflation back down to the central bank's target of 2%. Financial markets are skeptical of that forecast. Many investors are betting that the central bank will soon startinterest rates, despite repeated warnings to the contrary from Fed officials. The expectation of lower borrowing costs is one reason the stock and bond markets have rallied in recent weeks.
Two years ago, Fed policymakers believed that inflation would come down on its own, once pandemic supply problems were resolved. Instead, price hikes proved both larger and longer-lasting than the central bank expected.
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