(Reuters) – The Federal Reserve is seen slowing its aggressive rate-hike pace in December, with data published Thursday offering new evidence that the economic slowdown that the central bank is trying to engineer is getting underway.

Fed Chair Jerome Powell and his 18 fellow central bankers are still expected to back a fourth-straight 75-basis-point rate hike at their meeting next week.

But betting in rate futures markets is now running strongly in favor of a half-point increase at the Fed’s December meeting — a move that would bring the policy rate to a 4.25%-4.5% range — and no more than a half a point further over the next two meetings. (Graphic: December downshift?, https://graphics.reuters.com/USA-FED/zdpxdyqojpx/chart.png)

Bets are also increasing on interest rate cuts for the latter part of 2023.

U.S. economic growth rebounded in the third quarter, data Thursday showed, but the same report from the Commerce Department showed consumer spending slowed to a 1.4% rate from the prior quarter’s 2.0% pace, and the GDP deflator – an indication of price pressures — eased to 4.1% from the prior quarter’s 9.1%.

The slowdown in consumer spending is an “indication that higher interest rates are biting into the pocketbooks of the consumer,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

A separate report showed new orders for non-defense U.S. capital goods excluding aircraft, seen as a proxy for business spending, unexpectedly fell.

The Fed has lifted interest rates by a full three percentage points so far this year. Though the housing market has slowed dramatically, as mortgage rates have topped 7%, evidence of higher interest rates cooling demand in other parts of the economy has been harder to spot.

Fed policymakers have signaled they will keep raising interest rates to bridle demand in a bid to bring down inflation running far higher than the Fed’s 2% target.

They have also signaled that once they get rates high enough, they don’t intend to reverse course quickly and risk letting inflation heat up again.

Traders are betting they won’t follow through; futures contracts traded at CME Group Inc. are pricing in a top policy-rate range of 4.75%-5% by March 2023, falling to a 4.25%-4.5% range by December.

Fed policymakers will want to parse the data in the lead-up to their last meeting of the year on December 13-14, but may signal after next week’s meeting that their next step could be a downshift.

Economists say the U.S. economic tide is already turning.

“Real consumer spending on goods will fall further, services spending will slow, there are signs that business investment is wavering, and the housing market is reeling under the weight of higher mortgage interest rates,” wrote Regions’ economist Richard Moody. “Moreover, the full impact of higher interest rates has yet to make its way through the economy.”

(Reporting by Ann Saphir; Additional reporting by Lucia Mutikani and Stephen Culp; Editing by Chizu Nomiyama, Aurora Ellis and Daniel Wallis)