The Federal Reserve raised interest rates by half a percentage point on Wednesday, as it continues its crackdown on slowing, but stubborn, inflation.

The hike, smaller than the previous four increases, comes after the latest government reading showed inflation is running at its slowest annual rate in nearly a year.

Still, consumer prices in November were up 7.1% from a year ago, according to the report, which is far above the Fed's target of 2%.

"It's good to see progress, but let's just understand we have a long ways to go to get back to price stability," Fed Chairman Jerome Powell said at a press conference after the board announced its latest, smaller rate increase.

The Fed has raised its benchmark interest rate seven times since March, from near zero to just under 4.5%.

Many Americans, already contending with price increases in nearly every part of their lives, are feeling the effects as they pay more in interest on credit cards, mortgages and car loans. Currently, used car buyers are charged an average interest rate of 9.34%, compared to 8.12% last year, and they're making the largest monthly payments on record, according to credit reporting firm Experian.

While Wednesday's rate hike was smaller than the previous four, officials say the central bank is no less committed to bringing prices under control.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the central bank said in a statement on Wednesday.

On average, Fed policymakers now expect their benchmark rate to reach 5.1% next year — up from 4.6% they were projecting in September.

The stock market fell after the announcement of another increase, mostly as Wall Street digested the Fed's warning that there are more rate hikes to come. But stocks recovered and the major indices were mostly flat by mid-afternoon.

After hitting a four-decade high of 9% in June, inflation is showing some signs of easing. Gasoline prices have fallen sharply, and so have the prices of certain goods such as used cars and televisions.

Rents continue to climb, but Fed officials believe the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.

The Fed's looking at services, where prices are still rising

The biggest concern now is the rising price of services, which is primarily driven by the cost of labor.

The price of haircuts rose 6.8% in the last twelve months, while the price of dry cleaning jumped 7.9%. Services other than housing and energy account for nearly a quarter of all consumer spending.

"We see goods prices coming down," Powell said. "We understand what will happen with housing services. But the big story will really be the the rest of it, and there's not much progress there. And that's going to take some time."

With a tight job market, wages have been climbing rapidly. While that's good for workers, it tends to stoke the flames of inflation.

Powell has described the job market as out of balance, with more job openings than there are available workers to fill them. While the U.S. economy has now replaced all of the jobs that were lost during the pandemic, the share of adults who are working or looking for work has not fully recovered.

Many older workers who retired in the last two years may not return to the job market. With the supply of workers constrained, the Fed is trying to restore balance by tamping down demand.

Higher borrowing costs make it more expensive to get a car loan, buy a house, or carry a balance on a credit card. That's already curbing demand in some of the more sensitive parts of the economy, like the housing market.

While the vote to raise interest rates on Wednesday was unanimous, members of the Fed's rate-setting committee showed less agreement about where borrowing costs will go in the future. Some expect the Fed's benchmark rate will need to top 5.5% next year, while others believe a smaller increase will be needed to restore price stability.