FOMC: What It Is, Who Is on It, and What It Does

what is the fomc meeting

The degree to which the Fed raises interest rates has important implications for the stock market, inflation and the odds of a recession this year. Regardless of what the Fed does, Cheng and other advisors say that investing consistently, managing debt carefully and moving savings into high-yield accounts can help people get ahead of rising rates. Remember, a hawkish stance means the Feed wants to hike interest rates, while a dovish stance means the Fed wants to cut interest rates. In the FOMC meetings, developments in global and local financial markets are discussed, as well as financial and economic forecasts.

There are 12 Federal Reserve districts, each with its own Federal Reserve Bank. All 12 of the Reserve Bank presidents attend FOMC meetings and participate in FOMC discussions, but only the presidents who are Committee members at the time may vote on policy decisions. It is impossible to predict exactly what the Federal Reserve will decide during its next meetings, but the wording of the Fed’s announcement indicated a wait-and-see approach.

Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. The Federal Open Market Committee is responsible for directing monetary policy through open market operations.

You’re our first priority.Every time.

During the most recent FOMC meeting held on January 30-31, 2024, interest rates were kept unchanged at 5.25%-5.50%. This was somewhat expected, as this move gives the Fed additional time to evaluate if the current rates keep inflation at bay without hampering economic growth too much. Market expectations going into the January meeting were, therefore, somewhat dovish.

  1. Many traders use fundamental analysis when trading the financial markets, and economic indicators play a key role in this.
  2. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.
  3. “I will tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do [rate cuts],” Powell said Wednesday.
  4. Traders could flock to gold if the FOMC’s outcome suggests a negative outlook for the US economy because it is seen as a stable asset that holds its value throughout periods of turbulence.
  5. The Committee may also hold unscheduled meetings as necessary to review economic and financial developments.

Minutes from the Fed’s December meeting showed that several officials considered it “appropriate” to begin discussing slowing the rundown. A challenge for the bank is to avoid a repeat of what happened in 2019, when the end of an earlier phase of quantitative tightening created turmoil in the bond market that spread throughout the financial system. There were four rate increases in 2023, occurring at the February, March, May, and July FOMC meetings. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.

While the meeting is entirely private, the key decisions are announced at a press conference shortly after the meeting has finished. An FOMC rate decision has a significant effect on other economic variables, including foreign exchange rates, short-term interest rates, the price of services and goods, and even employment. In the hours leading up to the release, prices of interest-rate futures showed the odds of a March rate cut rose as high as nearly 65%. But in the minutes after the release of the Federal Open Market Committee’s latest policy statement, which pushed back a bit on the possibility of near-term rate cuts, the odds had fallen to 46%, according to the CME FedWatch Tool.

What Happens at Fed Meetings?

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Jerome H. Powell became the chairman of the FOMC and the Federal Reserve Board of Governors on Feb. 5, 2018, for a four-year term.

what is the fomc meeting

Committee membership changes at the first regularly scheduled meeting of the year. The Fed has held rates steady at 5.25%-5.50% already for several months, which has provided some relief for a strained banking sector and stock market. Experts predict that the Fed will shift to rate cuts in 2024—although this will depend on economic conditions in the coming weeks. The Federal Open Market Committee is the division of the Federal Reserve that sets monetary policy by managing open market operations.

Follow live coverage of the January policy meeting and the chairman’s press conference.

The Fed’s Board of Governors set the discount rate and the reserve requirements. The Fed’s decisions and statements have important implications for investors, as they affect the cost of borrowing, the value of assets, and the strength of the U.S. dollar. Investors and analysts pay close attention to the Fed’s signals and actions, as those can have a significant impact on their portfolios, strategies, and recommendations. The FOMC meetings are closed to the public but are recorded and transcribed.

This is the rate that banks charge each other for overnight loans known as fed funds. Banks use the fed funds loans to make sure they have enough to meet the Fed’s reserve requirement. Banks must keep this reserve each night at their local Federal Reserve bank or in cash in their vaults. This, of course, will depend on the trajectory of inflation and the state of the economy. The Fed’s policy moves ultimately depend on what economic data show in the coming weeks, including measures of inflation, employment, and productivity. The Fed also will monitor credit conditions, the financial markets, and global developments closely.

Odds of March Rate Cut Plummet

During the meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts. All participants—the Board of Governors and all 12 Reserve Bank presidents—share their views on the country’s economic stance and converse on the monetary policy that would be most beneficial for the country. After much deliberation by all participants, only designated FOMC members get to vote on a policy that they consider appropriate for the period. The Fed reported in January that the American economy remains strong and the labor market resilient–but also acknowledged that the pace of growth had slowed down compared to the first parts of 2023. Experts expect the Fed to continue to hold rates steady through the beginning of the year before making cuts, barring any sudden macroeconomic events.

The minutes of each meeting are released three weeks after the date of the policy decision. It also includes the vice-chair and four other regional Federal Reserve Bank presidents. The vice-chair position is permanent, while the regional presidents serve one-year terms on the FOMC on a rotating basis. The FOMC meetings and subsequent policy statements give a clear indicator of the state of the US economy. The announcement typically produces strong market movements in all areas, from equities to bonds and commodities such as gold.

The Chairman holds a press briefing after each FOMC meeting to discuss the FOMC’s policy decisions and to provide context for those decisions. The Chairman also discusses the economic projections submitted by each FOMC participant four times each at the press conference following the last scheduled FOMC meeting of each quarter. The Fed had raised rates almost a dozen times since early 2022-’23 in an attempt to cool the U.S. economy and battle inflation rates that peaked at more than 9% last year.

Leave a comment

Your email address will not be published. Required fields are marked *