The FOMC raised the fed funds target rate by 25 basis points to 5.00-5.25 percent, as expected. The statement of May 3 takes into account the"modest pace" of growth, recent"robust" job gains, and continuing low unemployment rate, and that"inflation remains elevated". While the FOMC said,"The US banking system is sound and resilient," the statement also noted"Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation." The risks from tighter credit conditions to the outlook are"uncertain" and the FOMC"remains highly attentive to inflation risks".

With the guidance provided in the statement, the FOMC does not signal an end to the current rate hike cycle. However, the statement eliminates the previous language that said,"The Committee anticipates that some additional policy firming may be appropriate." The statement indicates the FOMC remains data dependent, and"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." The shift likely means that the FOMC is prepared to pause for a time and see if the recent economic data maintain momentum for easing wage and price growth, improvement in the imbalances in the labor market, and the sort of"subpar" growth that is likely to accompany current monetary policy. This does not mean that future rate hikes are off the table should inflation remain persistent, especially in the non-housing services sector.

After slowing the pace of rate hikes to 25 basis points from 50 points at their two prior meetings, the Fed is expected to raise rates by another 25 points at the May meeting.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.