The Federal Reserve remains set on beating inflation and could raise rates to an even higher-than-expected level, though it may reduce the size of its future rate hikes.

The Fed raised its target fed funds rate Wednesday by 75 basis points, or three-quarters of a point, and said it would take into account the lagging impact of higher rates on the economy. That initial statement, released at 2 p.m. ET, was viewed as dovish, since it indicated rate hikes could be smaller.

But Fed Chairman Jerome Powell, in his 2:30 p.m. briefing, emphasized that the central bank will continue to battle rising broad price inflation until it can declare victory and reduce inflation to its target of 2%. Consumer inflation was running at an 8.2% annual pace in September.

“The comments he made that they’ll be raising rates forcefully and thoughtfully is really important because it really gets to the heart of the issue, which is they know they have to create some pain with the rise in unemployment,” said Diane Swonk, chief economist at KPMG. “That is a foregone conclusion. However they don’t want to create unnecessary pain. They do realize rate hikes ricochet around the world.”

Powell, in his comments, said the Fed’s window for a soft landing for the economy is narrowing, but he also talked tough on rates. The labor market has remained strong. Economists expect Friday’s September employment report to show 205,000 jobs were added and unemployment remained a low 3.5%, according to Dow Jones.

“We still have some ways to go, and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” Powell said during the media briefing.

Swonk said the Fed was acknowledging it will be calibrating its rate hikes so as not to cause undue damage to the economy.

“It’s pretty steadfastly hawkish so far. It’s not really what I expected. He’s hanging in there,” said Michael Schumacher, head of macro strategy at Wells Fargo. “Powell thinks the bias is they should tighten more than they would otherwise think, just so they should take out some insurance. His quote was that it’s very premature to think about pausing. They’re not going to pause anytime soon.”

Stocks fell sharply after an initial rally, and bond yields rose. In the futures market, traders bet the terminal rate for fed funds would reach 5.09% by May from just over 5% before the meeting. The terminal rate is the level at which the Fed is expected to stop raising interest rates. With Wednesday’s hike, the fed funds target rate range is now 3.75% to 4%.

“They’re telling you they’re willing to stop at a certain level and let that marinate in the market in order to bring inflation down,” said Jim Caron, head of macro strategies for global fixed income at Morgan Stanley Investment Management.

Caron said the market is now projecting a rate above the Fed’s median target for the terminal rate. In the September forecast, Fed officials had a median of 4.6%, which would indicate a range of 4.5% to 4.75%. “Basically what the market is saying is we think the Fed’s’ going to a policy rate of 5%, maybe it’s 5.25%,” he said.

Michael Gapen, Bank of America chief U.S. economist, said the door is now open to a 50 basis point hike in September, after a string of four 75 basis point hikes.

“What Powell is telling you is even though the pace may slow for good reasons, for risk management reasons, we should be slowing the pace,” said Gapen. “But what he was also saying was the bulk of what they saw, in particular, in labor markets and inflation would lead them to believe the terminal rate was probably higher than they thought in September.”