Fed preview: What to know ahead of the central bank's first policy meeting of 2023

Yahoo Finance's Jennifer Schonberger breaks down the fine line the Fed is walking as the central bank is set to raise interest rates by 0.25% in its January meeting to curb inflation.

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- The Federal Reserve is expected to announce it will continue hiking interest rates as Fed officials meet for their first policy meeting of 2023. Here's what you need to know. Economists widely expect the Fed to raise interest rates by a quarter point at this week's FOMC meeting, further slowing the pace of increases following a year of aggressive action to tame inflation.

- They're telling us the intent is to take policy into a restrictive stance and then to hold there for an extended period of time.

- But the battle against inflation is complicated, and the Fed walks a fine line between bringing down prices while also avoiding a major recession.

- We do have weakness in a lot of data, but they're focused mostly on the labor market. And the job gains, while decelerating, have still been pretty resilient.

- Although job growth has slowed in recent months, the unemployment rate remains at historic lows, coming in at just 3.5% in December. The latest inflation data has also shown some easing. The PCE index coming in at 4.4% in December, down from 4.7% the month before, though that's still much higher than the Fed's preferred 2% inflation target. The economy is beginning to show cracks in other areas as well. Consumer and business spending slowed in the fourth quarter followed by weaker retail sales and recent layoffs across the tech sector. Fed officials will be weighing all of these factors as the central bank determines its interest rate policy, and investors will be watching closely for new insight into how much further rates will rise and any signs the Fed may pause in the near future.