5 key takeaways from the Federal Reserve's rate hikes

The Federal Reserve ramped up its battle against inflation Wednesday with another large interest rate hike amid griping that the central bank's efforts will plunge the U.S. into a recession.

The Fed boosted its baseline interest rate range by 0.75 percentage points for the fourth time in four consecutive meetings. The rate increase was the sixth of the year and brought the Fed's baseline interest rate range to a span of 3.75 to 4 percent.

And while the rate hikes marked yet another aggressive move to lower inflation — which has stayed stubbornly high for months — the Federal Reserve sounded a slightly softer tone in its messaging about its future actions.

The bank's approach to stanch demand, however, will still be determined in large part by upcoming reports on consumer prices and the resiliency of the U.S. labor market.

Here are five key takeaways from the Fed's rate hikes.

Rate hikes will get smaller, but they're not going away soon

The Fed has rapidly raised interest rates with the hope of bringing borrowing costs high enough to slow the economy. The central bank has sprinted to get to that point with a string of massive rate increases, boosting its baseline interest rate range by 3.75 percentage points since March.

Fed officials said that with clear signs of the economy slowing, it will soon be time for the bank to hike rates in smaller increments such as 25 or 50 basis points.

Fed Chair Jerome Powell said that point could come as soon as the central bank's next policy meeting in December.

But he made clear that the Fed will continue raising interest rates and cannot afford to think about halting them with inflation still three times higher than the bank's annual target of 2 percent.

"It's very premature, in my view, to think we are talking about pausing our rate hikes. We have a ways to go," Powell said during a Wednesday press conference.

"We need ongoing rate hikes to get to that level of sufficiently restrictive [interest rates] and we don't, of course, we don't really know exactly where that is," he continued.

The Fed sees the economy slowing but the labor market holding strong

Fed officials said Wednesday they are paying more attention to how rising interest rates, stubbornly high inflation and headwinds from Ukraine have begun to weigh on the U.S. economy.

In his remarks, Powell cited several signs of a slowing economy, including the downturn in the housing market, declining business investment and a plateau in economic growth so far this year.

The economic slowdown is one intended effect of the Fed's rate hikes, which are meant to force households and businesses to spend less money and stop pushing up prices for goods and services.

Even so, Powell said the resilience of the labor market is one of several factors allowing Americans to keep spending money in the face of inflation.

And while he did not single out rapid wage growth as the primary cause of inflation, Powell argued the intense demand for labor and shortage of new workers was keeping up pressure on prices.

"The broader picture is an overheated labor market where demand substantially exceeds supply," Powell said.

"We keep looking for signs that sort of the beginning of a gradual softening is happening, and maybe that's there, but it's not obvious to me."

Americans will get pummeled by high interest rates

Powell said Wednesday the Fed will need to push its baseline interest rate even higher than officials projected in September.

That means the central bank may need to boost the midpoint of its target range to 5 percent or above before halting and keeping rates high for months.

"The inflation picture has become more and more challenging over the course of the year, without question," Powell said. "That means that we have to have policy be more restrictive and that has narrowed the window for a soft landing."

Americans will see the direct impacts in higher mortgage rates, credit card rates and other adjustable rate loans.

Mortgage rates dipped slightly before the rate hike, according to data released Wednesday by the Mortgage Bankers Association, with the 30-year fixed-rate mortgage rate falling to 7.06 percent, down from 7.16 a week earlier. But effective mortgage rates have still shot up to more than 7 percent, up from 4.2 percent in March and their pandemic low point of 2.7 percent.

A recession will be harder to avoid

Powell acknowledged Wednesday that the chances of avoiding recession were slimming with inflation remaining well above the annual target.

Prices rose 6.2 percent over the past 12 months, according to the personal consumption expenditures price index, the Fed's preferred inflation gauge.

With inflation this high, Powell ceded that the Fed would need to move interest rates to a higher level than it anticipated in September, which would put even more slowing pressure on the economy.

"No one knows whether there's going to be a recession or not, and if so, how bad that recession would be. Our job is to restore price stability so that we can have a strong labor market that benefits all over time," Powell said.

Global turmoil won't be a deterrent

In recent months, central banks in some of the richest countries have sought to take deflationary measures by raising interest rates.

These efforts, including those of the U.S., have garnered backlash from global policymakers and the United Nations, warning that interest rate hikes will have harmful impacts on developing economies that do not have resilient labor markets.

As the Fed hikes interest rates, the value of the U.S. dollar compared to other currencies increases.

That puts pressure on other central banks to raise interest rates while also making American goods and services far more expensive abroad.

Powell said the Fed is mindful about how global economic headwinds could affect the U.S. economy, but said the central bank would not ignore its legal mandate to keep the domestic economy strong.

"The world's not going to be better off if we fail to do that. That's a task we need to do. Price stability and stability in the United States is a good thing for the global economy over a long period of time," he said.