Monetary policy refers to the activity of central banks, such as the Federal Reserve (Fed) in the US and the Bank of England (BOE) in the UK, in managing the national economy. Central bank policies affect money supply and contribute towards achieving macroeconomic objectives, such as limiting inflation and encouraging economic growth.
These macroeconomic objectives and indicators have significant bearing on the performance of all sorts of securities. Markets often respond as soon as a policy is announced, or even suggested, so investors need to keep a close eye on central bank messaging.
The outcomes are often discussed by the Federal Open Market Committee (FOMC), which is the monetary policy-making branch of the Fed.