Following its May 2-3 meeting, the Federal Reserve announced that it has raised the target range for the federal funds rate to 5 to 5-1/4 percent, in response to the modest economic growth observed in the first quarter. This decision comes as the Fed seeks to achieve maximum employment and stabilize inflation at the 2 percent target over the long term.
During the first quarter, economic activity expanded at a modest pace, with robust job gains observed in recent months. The unemployment rate has remained low, while inflation continues to be elevated. The U.S. banking system has been deemed sound and resilient, but tighter credit conditions for households and businesses are expected to weigh on economic activity, hiring, and inflation.
The extent of these effects remains uncertain, and the Federal Open Market Committee (FOMC) is highly attentive to the potential inflation risks. The FOMC will closely monitor incoming information and assess the implications for monetary policy. In determining the extent of additional policy firming needed to return inflation to 2 percent, the Committee will consider the cumulative tightening of monetary policy, the lag with which monetary policy affects economic activity and inflation, and economic and financial developments.
The Committee also announced plans to continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as part of its previously announced strategy. It remains strongly committed to returning inflation to the 2 percent objective.
As the FOMC assesses the appropriate stance of monetary policy, it will continue to monitor the implications of incoming information for the economic outlook. The Committee has stated its preparedness to adjust the stance of monetary policy if risks emerge that could impede the attainment of its goals. The assessments will take into account a wide range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.