The Fed just showed the US still has more work to do in getting inflation under control

• The Federal Reserve raised interest rates by 25 basis points on Wednesday.
• It comes after the central bank paused rates in June.
• Powell has said that it will take more rate hikes to get inflation down to the target 2% level.

The nation's central bank just made its latest move to fight inflation.

On Wednesday, the Federal Open Market Committee announced it would be raising interest rates by 25 basis points, following a decision to pause rate hikes in June. It comes on the heels of data showing inflation continuing to slow — the latest Consumer Price Index data showed a 3.0% year-over-year increase in June, down from 4.0% in May. Still, as Fed Chair Jerome Powell has repeatedly said, the Fed continues to have a 2% inflation target, meaning more rate hikes will likely be necessary to achieve that goal.

"The main issue that we're focused on now is determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time—so that the pace of the increases and the ultimate level of increases are separate variables, given how far we have come," Powell said during the June press conference. "It may make sense for rates to move higher but at a more moderate pace."

It's unclear how many additional hikes, if any, are in store for Americans this year. But while 2023 began with fears of recession circulating, it's now looking more likely the US might be able to achieve a soft landing, in which the country can continue fighting high prices while avoiding a severe economic downturn. For example, Goldman Sachs' Chief Economist Jan Hatzius predicted in a bank note last week that the odds of a recession in the next 12 months now stand at 20%, down from an earlier 25% forecast. 

"The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession," he wrote.

Treasury Secretary Janet Yellen feels similarly, saying during a Bloomberg TV interview last week that "growth has slowed, but our labor market continues to be quite strong. I don't expect a recession. The most recent inflation data were quite encouraging."

Still, while Powell and administration officials are confident in the actions the Fed has taken to fight inflation, some Democratic lawmakers aren't convinced. Massachusetts Sen. Elizabeth Warren previously told Insider that she is urging the Fed to pause rate hikes to protect Americans from the consequences of further economic tightening.

"Already, we're seeing warning signs – including a rise in unemployment for Black workers – that the Fed resuming its aggressive rate hike campaign could be devastating for our economy, and disproportionately harm marginalized communities," Warren said. "Chair Powell must maintain the Fed's pause on rate hikes and avoid further rate increases that threaten our economy and risk throwing Americans out of work."

While Powell said in June that he recognized the impact rate hikes have on Americans, though, the fight to get inflation down isn't over just yet.

"I would almost say that the conditions that we need to see in place to get inflation down are coming into place," he said. "And that would be [real GDP] growth meaningfully below trend. It would be a labor market that's loosening. It would be goods pipelines getting healthier and healthier and that kind of thing. The things are in place that we need to see, but the process of that actually working on inflation is going to take some time."