What is the FOMC?

The Federal Reserve’s Federal Open Market Committee (FOMC) holds regular meetings to determine monetary policy in the United States. The FOMC sets key interest rates and makes decisions about buying and selling securities to influence the availability and cost of money and credit. This impacts interest rates, inflation, unemployment, economic output, and financial markets.

The FOMC comprises 12 members – the 7 Fed Board Governors and 5 Federal Reserve Bank presidents. However, only 5 bank presidents vote at any one time on a rotating basis. The New York Fed president always has a vote. The FOMC holds 8 scheduled meetings per year, about every 6 weeks. Additional meetings can be called as needed.

FOMC Meeting Schedule

FOMC meetings span two days. On the first day, Fed staff presented economic and financial updates. On the second day, FOMC members discuss policy and vote on changes. The outcomes are communicated via statements, projections, and a press conference. The Federal Reserve Board meets 8 times a year. 

Key FOMC meeting dates for 2023:

• • January 31st-February 1st

• • March 21st-22nd

• • May 2nd-3rd

• • June 13th-14th

• • July 25th-26th

• • September 19th-20th

• • November 1st-2nd

• • December 12th-13th

What Happens at FOMC Meetings?

When the seven members of the Board of Governors are done meeting, the FOMC issues a statement outlining changes to interest rates or asset purchases. It also provides insight into economic conditions. If rates change, a “dot plot” from the 12 Federal Reserve presidents shows each member’s view of where rates are headed. This helps gauge how much the money supply will be affected.

Quarterly meetings also have new economic projections and a press conference with the Chair of the Board. This provides forward guidance on the policy outlook. Markets react strongly to any surprises or changes in tone. The federal funds rate set by the FOMC tends to make the market react quite a lot.

The FOMC seeks to foster maximum employment and stable prices, its dual mandate. It uses interest rates and open market operations like quantitative easing to target the Fed’s goals. Lower rates stimulate the economy, while higher rates fight inflation. The Fed also aims to communicate its plans clearly to shape market expectations.

Why this Matters

Alright my friend, now that we’ve covered the basics of the FOMC, let’s go a little deeper into what happens during those big policy meetings held by the central bank and why they matter so much.

The FOMC typically meets eight times a year to discuss developments in the financial markets and determine the direction of monetary policy. Five presidents of the 12 regional Federal Reserve Banks join the Board of Governors at these meetings, which are the subject of much speculation on Wall Street.

FOMC meetings can result in buying or selling securities on the open market to tighten or loosen the money supply. Members have differing views, with some “hawks” favoring tighter monetary policies. The FOMC sets a target for the federal funds rate by adjusting reserve requirements and the discount rate.

Reading Between the Lines of the FOMC Statement

The main product of each gathering is the official FOMC statement. This contains any changes to the federal fund’s interest rates or asset purchases, along with assessing economic conditions. Seems simple enough, right? But for Fed watchers, the statement wording contains clues about the committee’s thinking.

Subtle tweaks in language from one statement to the next are scrutinized. If a sentence about inflation expectations is deleted, it could signal concern. Adding the word “somewhat” to describe economic activity could mean they see growth slowing. Investors dissect every nuance to predict what’s next!

Dot Plot Projections Point the Way

The dot plot release draws intense interest. This shows anonymous dots representing each member’s view of where rates are heading over the next few years. It provides a range of rate hike expectations. If the dots shift higher, it means more hikes are likely coming. The dot plot gives markets an advance peek into how aggressive Fed tightening might get.

Powell’s Pressers Hold Power

On quarterly meeting days, Fed Chair Jerome Powell aka the president of the Federal Reserve holds a press conference. This allows him to expand on the statement and field reporter questions. Markets watch closely for any clues about how quickly the Fed might raise rates or start reducing its balance sheet.

Powell has to walk a tightrope of being transparent while not surprising markets. Any deviation from the script can spark volatility. His tone, word choices, and body language are dissected in real time. It’s political theater meets monetary policy!

Dissecting Economic Projections

Updated economic projections are also released quarterly. These include the “central tendency” outlooks from FOMC participants for growth, unemployment, and inflation over the next few years.

If these forecasts change significantly, it signals shifts in the Fed’s reaction function. For example, higher inflation estimates could mean more aggressive tightening is coming. Reading the projections on tea leaves gives a sense of how the dots connect for Fed policy.

We’ve covered a lot of ground on the purpose, schedule, and mechanics of FOMC meetings. To wrap up, let’s recap when the key events happen surrounding each policy gathering.

Below is a schedule to guide you through the data and developments in the weeks before and after an FOMC announcement. Understanding this timeline can help you better interpret the signaling around monetary policy.

The Month Leading Up to an FOMC Meeting

• • Jobs Report: The monthly employment situation report is closely watched data leading to meetings. Strong job growth and falling unemployment allow the Fed to keep raising rates.

• • CPI Inflation: The latest consumer price index inflation figures come out mid-month before FOMC meetings. High inflation prints keep pressure on the Fed to stay hawkish.

• • GDP Estimate: An updated GDP growth estimate lands about a week before the FOMC. Accelerating or slowing growth influences rate hike expectations.

• • Fed Speeches: Various Fed officials give speeches in the weeks before meetings. Markets analyze their comments to predict how the Fed might be leaning.

FOMC Meeting Week

• • Tuesday: FOMC members gather for the first policy discussion session. Markets are on alert for any leaks of news.

• • Wednesday: The FOMC statement is released at 2:00 pm ET, followed by Powell’s press conference at 2:30 pm ET if it’s a quarterly meeting. Markets digest the developments, which can cause significant volatility.

After the FOMC Meeting

• • Minutes: The full FOMC meeting minutes are released 2-3 weeks later, providing more insight into the deliberations.

• • Fed Speeches: Officials discuss the meeting outcomes and what’s next, giving markets further clues into the Fed’s thinking.

• • Next Meeting: The countdown begins for the next FOMC policy decision in 6-8 weeks. The cycle continues!

So in summary, while the FOMC meeting days themselves are critical, savvy Fed watchers tune into the months of build-up and fall-out around each one. Mastering this schedule and interpreting all the associated signals takes practice. However, understanding the roadmap can help you better analyze monetary policy and its market impacts.