The Federal Open Market Committee is a committee within the Federal Reserve System that oversees and sets US monetary policy. The 12-member committee – 7 members of the Board of Governors and five of the 12 Reserve Bank presidents – meets eight times a year to discuss global financial developments such as interest rates, supply and demand, employment and wages, and consumer income and spending practices, among others.
The FOMC meeting is one of the highly-anticipated events on the economic calendar – a tool used by traders to monitor important economic events and releases. This is because the committee’s decision to increase, decrease or keep interest rates steady will have a tremendous effect on currency values.
The FOMC releases the key decisions they’ve made right after the meeting at a press conference. However, the committee releases the full minutes after three weeks.
Why Does It Matter to Traders?
The main objective of the FOMC meeting is to review existing economic data. From there, the members decide on the necessary interventions to stabilize the U.S. economy. The outcome of the meeting gives traders a glimpse of the U.S. economy’s health. Immediately after the release of key decisions, market volatility tends to rise as market players react to the decisions.
The decision of the FOMC directly impacts the trading instruments below:
Currency pairs quoted with the U.S. dollar: Generally, higher interest rates increase the value of the U.S. dollar. This is because a higher interest tends to attract foreign investment.
Bonds: Higher interest rates may push bond prices lower
Gold: A strong dollar tends to lower the value of gold. Given that it’s a safe-haven asset, investors could flock to gold if the FOMC’s outcome suggests a negative outlook for the US economy.
Indeed, the FOMC meeting is an essential event for you to prepare for. Make sure that you develop a sound trading plan – both before and after the meeting. This is to take advantage of the volatility surrounding the decision.
Related article: What is the NFP and How to Trade it?