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Inflation appears to be slowing but the Fed is expected to announce another rate hike

A MARTÍNEZ, HOST:

For more than a year and a half, inflation has been eating away at our pocketbooks, driving up prices of, well, pretty much everything. The Federal Reserve is expected to announce its latest interest rate hike this afternoon in an effort to pause inflation. Here's NPR's Scott Horsley.

SCOTT HORSLEY, BYLINE: Inflation is coming down slowly. A report on Tuesday showed inflation dipped from an annual rate of 9% in June to just over 7% in November. But prices are still climbing much faster than Americans were used to in the decades before the pandemic, so the Fed is expected to keep raising interest rates in an effort to tamp down demand and bring prices under control. Rising interest rates make it more expensive to get a car loan or a home mortgage or carry a balance on your credit card. The central bank has already raised its benchmark borrowing rate six times this year from near zero in March to just under 4% now. Fed Chairman Jerome Powell says despite that strong dose of monetary medicine, the economy and especially the job market have held up well.

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JEROME POWELL: We're in a place where we really can get inflation under control. Unemployment's at 3.7%. I don't regret getting to where we are. And I think broadly the world would be better off if we can get this over quickly.

HORSLEY: Today's rate hike is expected to be smaller than the last four, and some forecasters think the Fed will pause altogether after maybe one more rate increase in February. We'll get some clues about that this afternoon when Fed policymakers release their own forecast of where interest rates are headed. Economist Julia Coronado of MacroPolicy Perspectives says even if rate hikes slow or stop in the coming months, that doesn't mean the central bank's about to declare victory over inflation or that borrowing will soon get any cheaper.

JULIA CORONADO: Don't think that just because we're going to stop raising rates in the near future doesn't mean we're going to be cutting them any time soon. The money is still going to be more expensive and tighter. And that's one of the ways they're going to keep inflation in check.

HORSLEY: Higher borrowing costs are already being felt in the most sensitive sectors of the economy. Home sales and home construction have declined, and prices for home furnishings are starting to come down as well. Tuesday's inflation report also showed falling prices for used cars, airline tickets and gasoline. The Fed's biggest concern now is the rising price of services. They're likely to keep climbing so long as wages are rising at a rapid rate.

Scott Horsley, NPR News, Washington.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.