With the increase, the Fed has raised interest rates by 4.5% over the last year. Powell said the smaller interest-rate increase will help the committee better monitor the economy’s progress.

Looking ahead, Powell said it is unlikely for interest rates to begin coming down in 2023.

Total Personal Consumption Expenditure prices rose 5% over the last 12 months ending in December. However, Powell said recent market indicators have shown inflation is beginning to slow.

“While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path,” he said.

The chairman recalled the tumultuous economic landscape of 2022 by looking at the key indicators that the Federal Open Market Committee monitors most closely. Real Gross Domestic Product rose by just 1%, and spending and production appear set for a modest uptick this quarter. Interest rates have slowed the housing market and business investing.

“Despite the slowdown in growth, the labor market remains extremely light with the unemployment rate at a 50-year low, job vacancies still very high and wage growth elevated,” Powell said.

Powell said job gains have experienced a boon with employment rising by about 247,000 per month in the last quarter, though there is still an imbalance between available jobs and job-seekers. There is a possibility that inflation can be tamed without an increase in unemployment, he said.

Wall Street braced for a 0.25-point rate increase after the nation’s central bank took more aggressive moves on interest over the past year, increasing rates by half a point in December, preceded by four other 0.75-point rate hikes because of persistent inflation.

Many economists credit the Fed’s recent actions as several key economic indicators show inflation easing after peaking last October.

To combat inflation, time is of the essence, according to Powell. He said the threats of more severe inflation increase the longer the current spell of high inflation persists.

“Longer-term inflation expectations appear to remain well-anchored,” Powell said. “That’s not grounds for complacency.”

Wary investors were expecting a less severe increase this time around, which would put the federal funds rate target at 4.5% to 4.75%, up from the current range of 4.25% to 4.5%. A year ago, the benchmark rate was near zero.

Wednesday’s rate increase is the smallest rate increase by the Fed since last March.

At the last central bank meeting in December, the Fed raised interest rates by another half a percentage point, bringing the benchmark interest rate to the highest point in 15 years. At the time, the panel of governors projected interest rates would climb above 5% and remain there for all of 2023.

Previously, several central bank officials indicated the pace of interest rate hikes would slow as the economy begins to settle from the current conditions.

“There appears to be little turbulence ahead, so I currently favor a 25-basis-point increase at the FOMC’s next meeting at the end of this month,” Fed Governor Chris Waller said earlier this month.

For now, inflation remains well above the Fed’s 2% target rate but has shown some signs of weakening in recent months, with government data showing a year-over-year drop in inflation in December, which was the slowest rate of increase in more than a year.

In another good sign, the Wholesale Producer Price Index inflation dropped by 0.5% in December, and PPI inflation was 6.2% in 2022 compared to 10% in 2021, according to the U.S. Bureau of Labor Statistics. And almost half of that wholesale inflation decrease was from a 13.4% drop in gasoline prices.

Federal data published last week on personal income and spending showed some of the inflationary strains are starting to catch up with consumers, though it’s unlikely the world’s largest economy will experience a major recession.

The Bureau of Economic Analysis, part of the Commerce Department, reported personal income increased by 0.2% in December to $49.6 billion, disposable income increased by 0.3% to $49.2 billion, but spending took a hit, declining by 0.2% from November levels to $41.6 billion.

Financial experts said the latest economic data might lead the Fed to acknowledge that inflation was finally slowing and the economy is showing signs of stabilizing, but Powell was also known to be predictably measured in his words to head off volatility on Wall Street.

“Fed Chair Powell will need to acknowledge encouraging inflation data that’s come in,” said Wilmington Trust chief economist Luke Tilley. “This is not a one off. We have had had three months of encouraging data.”

Powell was asked if the FOMC had considered slowing increases even more, such as foregoing a hike in February and possibly resuming in March. Powell said this is not something the committee is considering.

Some insiders said they believed the central bank would keep this latest hike in place for the remainder of the year, while other insiders said they would be listening for any indication of when the Fed could potentially scrap the ongoing rate increases down the road.

“There could be one last hawkish sting in the tail,” said Paul Ashworth, chief U.S. economist at Capital Economics. “We expect [Wednesday’s] statement to maintain the language that ‘ongoing increases’ (emphasis on the plural) in rates will be required and, to counter the recent easing in financial conditions, forward guidance could be added that commits to leaving rates at elevated levels for some time.”

Still, across the wider landscape of the American economy there remained many other troubling signs.

Several big tech giants have announced massive layoffs in recent months while consumer spending ability has been decimated by the high price of gas and utilities.

Consumer-level inflation is cooling off from the double-digit levels that gripped the U.S. economy during summer 2022, but prices, particularly at the grocery store, remain stubbornly high, with eggs in particular experiencing an exponential gain in prices at the retail level.

The core consumer price index — which tracks longterm inflation but excludes food and energy costs — grew by 0.3% in December after increasing 0.2% the previous month.

Spending in November improved by 0.1% from October levels, suggesting inflationary pressures were mounting for consumers.

The FOMC will meet to discuss a rate increase again in March.