The Fed Hints at an End for Rate Hikes
At the conclusion of its May meeting, the Federal Reserve’s monetary policy committee raised the federal funds target rate by 25 basis points. Though no explicitly stating that their tightening is over, the language the Fed used in their statement signals that they are moving toward a more data-dependent posture.
According to Eye On Housing, today’s increase of the fed funds rate moved that target to an upper rate of 5.25%, the fastest increase for rates in decades. The Fed noted: “The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee 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.” While not explicit, this language represents a pivot to a more data-dependent stance. Previously, the Fed had asserted that additional rate hikes would be required, it was only a matter of how large.
