The Federal Reserve raised the fed funds rate by 25bps to a range of 5%-5.25% during its May meeting, marking the 10th increase and bringing borrowing costs to their highest level since September 2007. The decision came in line with market expectations. The central bank also signaled that it may be done with a tightening cycle by taking out from the statement sentence pointing to the need for additional policy firming.
Still, policymakers added that in determining the extent to which additional policy firming may be appropriate, they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Officials also noted that although the U.S. banking system is sound and resilient, tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation and the extent of these effects remains uncertain.
