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Federal Reserve Meeting (FOMC)

Find out when the next FOMC meeting and press conference is being held and what its decisions on monetary policy might mean for your trading strategy.

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What is the FOMC and what does it do?

The Federal Open Market Committee (FOMC) is the monetary policy​-making branch of the Federal Reserve, the US central bank. It is responsible for managing the supply and cost of money and credit in the economy, aiming for inflation at a rate of 2%, maximum employment and economic growth.

Its key role is deciding whether interest rates will go up, down or remain stable. It does this by setting a target range for the federal funds rate, which is the rate at which banks lend to each other. Changes to this rate can affect other interest rates, increasing or decreasing borrowing costs for consumers and businesses.

After interest rates, the main monetary policy tool that the FOMC uses is the buying and selling of government bonds​ on the open market, which is known as quantitative easing.

The FOMC holds eight scheduled private meetings throughout the calendar year, with others being arranged as and when needed. During these meetings, members of the committee will vote on monetary policy. The FOMC is made up of 12 members. This consists of seven members of the Board of Governors, plus the president of the Federal Reserve Bank of New York and four regional Federal Reserve Bank presidents on an annual rotational basis.

The FOMC was created in the Banking Act of 1935, during the Great Depression, to ensure a national strategy rather than a series of independent regional monetary policies.

When is the next FOMC meeting and announcement?

The next FOMC meeting will be held on 27 and 28 July 2021. The FOMC will review current economic and financial conditions such as equity prices, treasury yields, inflation and employment numbers, and what these types of economic indicators​ might mean for monetary policy.

A vote on policy strategy is taken at the conclusion of the discussions and the outcome is announced in a policy statement and press conference held by the chair of the Federal Reserve, usually at 2pm on the second day.

FOMC Announcement DateSummary of economic projections?
September 22nd 2021Yes
November 3rd 2021No
December 15th 2021Yes
January 26th 2022No
March 16th 2022Yes
May 4th 2022No
June 15th 2022Yes
July 27th 2022No
September 21st 2022Yes
November 2nd 2022No
December 14th 2022Yes
February 1st 2023No

Each meeting date is tentative until confirmed at the meeting immediately preceding it.

When are the minutes of the FOMC meeting released?

Minutes of the meetings are released three weeks after the meeting is held. The minutes record the main areas of discussion, such as developments in financial markets and a review of the current economic situation. They outline the decisions taken by the committee and an explanation of the reasoning behind them. The minutes also reveal wording related to the FOMC’s views about potential future monetary policy.

Four times a year — in March, June, September and December — the FOMC provides economic projections looking at GDP, unemployment rates and inflation for the current year and in the longer term. One of the most revealing projections is the committee’s “dot plots", where each member pots their view of where interest rates might be in the next 3 years and in the longer term. This is a particularly useful piece of information as it will allow market participants to see if the consensus path for longer term rates is changing.

For example, the June chart showed that 13 out of 18 federal officials expected at least one interest rate hike during 2023.

What trading opportunity does the FOMC meeting present?

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.

As a result, long-term traders can reformulate strategies around higher or lower interest rates, more bond purchasing or quantitative easing, expectations of higher or lower inflation, and the overall economic outlook. Traders anticipating higher interest rates could increase their exposure in banks and financial stocks, and lower exposure in high dividend-paying sectors such as utilities or bonds.

The FOMC’s discussions and announcements over the economic outlook and the direction of inflation could also mean a switch from growth stocks​ to value stocks, as value stocks tend to be preferred by investors in periods of economic uncertainty because they offer more stable long-term investments. Growth stocks on the other hand tend to perform well under stronger economic conditions. There are also opportunities for day traders to take advantage of volatility in the markets, both prior to the announcement and immediately afterwards.

Traders can also analyse the tone of the FOMC announcement to determine whether there are more hawks than doves among its members and whether that balance has changed since the last meeting. A hawk favours higher interest rates to tackle inflation and growth, while a dove favours a lower interest rate to support growth and inflation.

Trade on FOMC meeting results

What are some of the tools that the FOMC uses to influence the markets?

The main result of the following open market operations has been the increase in the Fed’s balance sheet and the lowering of interest rates.

  • Federal Funds Rate — This is the effective interest rate at which banks lend to each other. The Fed can lower or raise this rate to encourage or discourage lending, which in turn impacts economic activity.
  • Quantitative easing (QE)​ — This involves the buying and selling of short/long-term government/corporate bonds and mortgage backed securities on the open market. The FOMC can decide to sell bonds and lower the amount of money in the economy, raising interest rates, or they can buy bonds to ramp up money supply to lower interest rates and support the flow of credit to consumers and businesses.
  • Reverse repurchase agreements — Known as reverse repo, this is an open-market operation that involves buying securities from banks to be held overnight to then sell them back at a slightly higher price. This increases a central bank’s money supply.
  • Primary credit rate — This is the interest rate that is charged to banks looking to borrow funds from the Federal Reserve. By increasing or decreasing this rate, the Fed can influence whether banks will lend more or less money to their clients. If the rate is high and therefore more expensive for banks to borrow money, they will have less cash to lend out so decreasing money supply in the economy.
  • Reserve requirements — Set by the Fed’s Board of Governors, this is the minimum amount banks are expected to have in their coffers. This ensures that they will have enough cash to meet any sudden demand for withdrawals from customers. As it is kept in reserve, the bank is unable to lend the money out to households or businesses. As such, either increasing or decreasing the reserve requirements can help to control money supply.
  • Yield curve control (YCC) — A yield curve is a graph that plots interest rates of bonds with equal credit quality but different maturity rates. YCC involves targeting a longer-term interest rate by a central bank and then buying or selling as many bonds as necessary, which yield more than that target. It means fewer bond purchases are needed compared with QE.

What markets are typically moved by the FOMC meeting?

Forex. A change in interest rates can impact the value of the US dollar. Higher yields tend to make the dollar more attractive for both domestic and global investors.

Equities. Higher rates can steer some investors away from equities and into other areas such as cash. Conversely, lower interest rates may make equity trading more attractive as companies can use it to borrow more capital and drive growth. Higher inflation can also impact valuations, particularly of growth stocks.

Commodities. The value of gold tends to fall if interest rates rise.

Bonds. Bond prices tend to go down when interest rates rise and up when they fall. However, the rate of increase or decline depends on bond maturity. The longer the maturity, the greater the drop if rates are hiked. What are bonds and how to trade them​ >

An overview of some of the most historic FOMC meetings

According to the Fed, in April 1942, it committed to keeping a low interest-rate peg of 3.8% on short-term Treasury bills. It also capped the rate on long-term Treasury bonds at 2.5%. This led to the Fed buying up large amounts of government securities and ramping up money supply. It allowed the government to engage in cheaper debt financing to help fight the Second World War. The Dow Jones Industrial Average index fell to $92.92 in April 1942, but then sprang into a bull market​ ending in 1945 at just below $200.

In an unscheduled FOMC meeting on 6 October 1979, Federal Reserve System Chair Paul Volcker announced new measures to rein in inflation, which was around 9% annually at that time. According to the Federal Reserve, reporters rushed to the announcement to hear that the Fed would shift its focus to managing the volume of bank reserves in the system instead of trying to manage the day-to-day level of the federal funds rate. It was an approach that would lead to more fluctuation in rates. Volcker told reporters: “By emphasising the supply of reserves and constraining the growth of the money supply through the reserve mechanism, we think we can get firmer control over the growth in money supply in a shorter period of time.” However, he warned that there would be “some difficult adjustments ahead”. Indeed, interest rates reached 20% in 1980, inflation soared to 11.6%, and a recession took hold. Car dealers hit by high rates sent coffins to the Fed containing the car keys of unsold vehicles.

In December 2012, the FOMC brought in a strategy of threshold-based forward guidance as the US continued its recovery from the Great Recession of 2007–2009. It said that low interest rates would remain as long as the US employment rate was over a threshold value of 6.5% and inflation was no more than half a percentage point above 2%. The Dow Jones Industrial Average fell from $13,245 on 12 December to $12,938 on 31 December.

In an unscheduled meeting on 15 March 2020, in response to the emergence of the COVID-19 pandemic, the FOMC lowered interest rates to a target of 0% to 0.25%, down from 1% to 1.25% — a move designed to bolster the economy. It also increased holdings of Treasury securities by at least $500bn to ensure money supply.

5 top tips for trading on FOMC meetings

  1. Know when the meeting is happening. Check out the FOMC meeting calendar on the Federal Reserve website. Look for the time of the policy statement and press conference announcement, as well as the date and time when meeting minutes are released. Keep checking the website regularly for news and sign up to the Federal Reserve Twitter feed, just in case there are any unscheduled meetings announced.
  2. Devise a strategy ahead of the announcement. What are the market expectations? Read analyst opinion and media commentators. Analyse recent economic and financial performance and comments from past FOMC meetings. Ask yourself the following questions: how would you react if interest rates were cut or hiked; are you ready to change strategy depending on the decision?
  3. React to volatility. Because of forward guidance, there is perhaps less volatility around a FOMC announcement than in the past, but it is still present and can be significant. Get ready to trade if, for example, rates are changed or expectations of a cut or raise are not met. Wait for the market’s initial reaction to the announcement to pass, and find the real direction of travel after things have calmed down.
  4. Understand risk-management​. Don’t forget the basics of risk management when trading on FOMC meetings. That means using stop losses and take-profit orders, as well as the rule to avoid having more than 1% of your capital in a single trade.
  5. Think long-term. You don’t have to trade the announcement on the day itself. Often, the decisions taken by the FOMC take time to influence the economy and the markets. Continue your long-term trading strategy, and don’t do anything rash just because of other traders.
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Who are the current FOMC members?

The current FOMC committee members are as follows: Jerome H. Powell, Board of Governors, chair; John C. Williams, president, Federal Reserve Bank of New York; Thomas I. Barkin, Richmond; Raphael W. Bostic, Atlanta; Michelle W. Bowman, Board of Governors; Lael Brainard, Board of Governors; Richard H. Clarida, Board of Governors; Mary C. Daly, San Francisco; Charles L. Evans, Chicago; Randal K. Quarles, Board of Governors and Christopher J. Waller, Board of Governors.

Alternate members include: James Bullard, St. Louis; Esther L. George, Kansas City; Naureen Hassan, first vice president, New York; Loretta J. Mester, Cleveland and Eric Rosengren, Boston.

What is forward guidance?

Forward guidance helps consumers and businesses better understand the future direction of monetary policy, particularly interest rates. In its post-meeting statements, the FOMC outlines its plans over the next few months, such as keeping interest rates low to support the economy and meet its inflation targets, as well as guiding when those rates might begin to increase. Learn more about similar types of economic indicators.

How important are the FOMC’s dot plots?

FOMC members give anonymous forecasts of where they expect interest rates to be at the end of the current year, the next three years and in the long-term. Their forecasts are represented as a dot on a so-called dot plot chart. From this chart, you can work out a benchmark forecast and help decipher the future direction of interest rates. By looking at past dot plots, a trader can also get a sense of how hawkish or dovish the FOMC is becoming. However, they must remember that these are only forecasts.

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