Inflation is starting to ease, but don’t expect interest rate relief just yet.

On Wednesday, the Federal Reserve raised its benchmark interest rate for an eighth time since March, a sign that its campaign to control price increases is far from over.

The rate rise, 0.25 percentage point, is less aggressive compared to the 0.5 percentage point rate hike in December. Before that, the Fed announced four 0.75 percentage point rate hikes in a row. The move puts interest rates at a range of 4.5% to 4.75%, the highest level in 15 years.

While the pace of adjustments is slowing, Fed officials signaled further rate moves to come. “We will stay the course until the job is done,” Fed chair Jerome Powell said in a news conference. “We’re talking about a couple more rate hikes.” He added that he does not see the Fed cutting rates in 2023 since the recent signs of slowing inflation are at an “early stage.”

The announcement brought mixed reaction to the markets at first, but by 3 p.m. on Wednesday, all of the major U.S. stock averages were up. The tech-heavy Nasdaq Composite rose the most, up nearly 2%, while the S&P 500 rose 1% and the Dow Jones Industrial Average a more modest .05%.

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For borrowers, the higher rate means paying even more interest on credit cards, student loans and other types of variable-rate debt. But for the overall economy, policymakers are adamant that if they don’t keep fighting inflation by making it more expensive for business and people to borrow money, price spikes could re-accelerate and require even more painful measures in the future.

“I think the Fed is getting close to where they want to hold rates steady and not keep raising them,” William English, a former senior Fed economist and finance professor at the Yale School of Management, told TIME before Wednesday’s announcement. “They have been playing catch up for a while but are probably reasonably content with how things are playing out and will want to avoid making a big change in the outlook for policy at this stage.”

The Fed’s challenge

Since the Fed’s last rate hike, inflation has meaningfully slowed and consumers are beginning to spend less—suggesting that the economy is playing out the way the Fed had hoped. The latest Consumer Price Index data shows that inflation declined to 6.5% in December compared with a year earlier, down from 7.1% in November and a recent peak of 9.1% in June. But many economists and Wall Street investors are worried that the Fed will raise rates too high and for too long, putting the economy at risk of a deep recession.

“The Fed is very close to saying that they have won the battle and addressed the inflation problem,” says Jeffrey Roach, chief economist at LPL Financial. “But the battle is not quite over. They need to remember the other half of their mandate is growth.”

Fed officials predicted in December that they would lift rates to just above 5% in 2023, then hold them at a high level throughout the year. Economists and Wall Street investors were paying particular attention on Wednesday to how Fed chair Jerome Powell discusses what may come next: Will the Fed continue to ride the brakes, or will it start to give the economy some gas?

Many Fed officials are in favor of smaller rate hikes to allow time to evaluate the impact of their policies, given all the uncertainty around how the economy may respond. “If you’re on a road trip and you encounter foggy weather or a dangerous highway, it’s a good idea to slow down,” said Lorie Logan, president of the Federal Reserve Bank of Dallas and a former top official at the New York Fed, in a speech earlier this month. “Likewise if you’re a policymaker in today’s complex economic and financial environment.”

Still, the Fed’s long-term outlook is currently unclear. “It’s hard to tell if high rates are here to stay,” English says. “It’s very difficult to calibrate monetary policy very precisely, and so they’re doing the best they can but where rates will be a year from now is just quite uncertain.”

Higher interest rates mean that it’s more expensive to borrow money, which economists say should slow both big purchases and new hiring. But recent economic data suggests the job market remains very strong, with a 3.5% unemployment rate, the lowest level in half a century. Plus, many workers are seeing wage gains, leaving the Fed in a challenging spot to navigate since a strong job market could signal a re-acceleration in growth and inflation.

“There’s a huge concern that a tight labor market will bid up wages,” Roach says. “As wages rise, so will aggregate demand and pricing pressures in the economy.” The possibility of rising wages is one of the reasons why the Fed is considered likely to take a cautious stance and avoid pulling its interest rate hikes back prematurely.

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Why the Fed keeps raising interest rates

The Fed hopes its rate hikes will temper demand for consumer goods and services by making it more expensive to borrow money. The philosophy is that if goods and services become too pricey, fewer people will buy them, and sellers will have to lower their prices to retain customers. For example, a car dealership may be forced to slash the price on a new car if potential buyers are unwilling to pay the extra interest rates for auto loans.

It may sound like a simple formula, but the reality is much more complicated. The Fed envisions bringing inflation down to about 2%—its preferred pace of price rises across the economy. The challenge is that the Fed doesn’t have many levers to pull to achieve that goal—and rising interest rates makes it harder for businesses to grow and more expensive for Americans to buy houses, cars and other big-ticket items.

“Without interest rate hikes, inflation could become embedded—and that’s problematic,” says Greg McBride, chief financial analyst at Bankrate. He added that in the 1970s, the Fed pumped the brakes on rising interest rates and inflation soon returned. “It plagued the economy for years and it took more severe action from the Fed in the early 1980s to finally put inflation in the rearview mirror, but it came at a very high cost that could have been avoided if inflation had been dealt with completely six, seven years prior to that.”

“I don’t know that this rate hike is a difficult decision,” McBride says. “I think the tougher decision is still to come. And that is, at what point do they stop raising the rate? And then after that is—how long do they keep breaks at that level?”

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How the high interest rates impacts credit cards and other debt

Rising interest rates can have a number of effects on borrowers, many of which can be difficult to bear. Those with credit card debt should brace for more interest rate shock in the coming months, since most credit cards have a variable interest rate that rises as the federal funds rate also increases.

Average credit card rates are currently at 19.93%, an all-time high, according to Bankrate. By comparison, the average credit card interest rate stood at around 16.3% at the outset of 2022. The rise in credit card rates has already put a strain on the growing number of borrowers who carry a balance from month to month, as incomes have not kept pace with inflation.

McBride advises cardholders with debt to consider transferring their balance to lower-interest options, such as a 0% interest balance transfer card. He says cardholders should also refrain from putting additional purchases on credit cards unless they can pay the balance in full at the end of the month with enough money set aside for other expenses.

Some home shoppers could also find it more difficult to afford a home. While mortgage rates don’t follow the federal funds rate exactly, they are influenced heavily by the central bank’s policy. Each time the Fed raises its benchmark rate, variable home loan rates tend to move in tandem. That means anyone shopping for a new home in early 2023 may continue to pay significantly more for a mortgage than a year ago.

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The weekly average for a 30-year fixed rate mortgage is now 6.4%, down from mid-November, when it peaked at 7.08%. But the rate is still relatively high and leaves homebuyers with considerably less purchasing power.

Those looking to finance a car should also plan to shell out more money. The Fed’s rate hikes will increase interest costs for new auto loans, which are currently at a 6.18% rate for a five-year new car loan, up from 3.96% at the beginning of 2022. Car shoppers with higher credit scores may be able to get better loan terms.

But there is some light for consumers. The recent run of interest rate hikes has likely pushed up the interest consumers can make on their cash savings. Some online savings accounts are touting rates as high as 4.35%, while certain certificates of deposit may provide higher rates.

“Savings are finally getting rewarded,” McBride says. “You’ve kind of got the best of both worlds for savers now in that interest rates are still rising, and the rate of inflation is declining. So that’s a double-win for savers.”