The announcement comes one day after data from the Bureau of Labor Statistics showed positive signs on inflation. The consumer price index rose 7.1% in November from a year earlier, the smallest 12-month increase since December 2021 and below economists' expectations of a 7.3% increase. The annualized CPI figure has dropped steadily since June, when it was at 9.1%, a 40-year high.
But at a news conference Wednesday, Fed Chairman Jerome H. Powell wasn't taking a victory lap. "The inflation data received so far for October and November show a welcomed reduction in the monthly pace of price increases, but it will take substantially more evidence to give confidence that inflation is on a sustained downward path," he said.
As it did in November, the committee said that in determining the pace of future increases in the target range, it will take into account the "cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
Looking ahead, the committee's median projection for the federal funds rate at the end of 2023 jumped to 5.1%, up from a 4.6% projection in September. Also, its median projection at the end of 2024 is now 4.1%, up from its 3.9% projection in September.
"Of course, these projections do not represent a committee decision or plan, and no one knows with any certainty where the economy will be a year or more from now," Mr. Powell said. "Our decisions will depend on the totality of incoming data, and their implications for the outlook for economic activity and inflation."
Mr. Powell said the Fed is taking "forceful steps to moderate demand so that it comes into better alignment with supply."
Reducing inflation is likely to require a "sustained period of below trend growth and some softening of labor market conditions," he added.
But the Fed will continue raising rates as it sees fit. "The historical record cautions strongly against prematurely loosening policy," Mr. Powell said. "We will stay the course until the job is done."
The committee's 12 members unanimously approved the rate hike Wednesday and said in a statement that it expects "ongoing increases in the target range will be appropriate."
The full effect of the Fed's monetary policy this year has yet to be felt, Mr. Powell said, and it's likely time to proceed with smaller rate increases. "We think that the appropriate thing to do now is to move to a slower pace," he said. "That will allow us to feel our way … and better balance the risks that we face."
The committee's next meeting is Jan. 31-Feb. 1.