FOMC and Interest Rate Decisions Explained

The FOMC (Federal Open Market Committee) is the branch of the US Federal Reserve responsible for setting US monetary policy, most visibly through its interest rate decisions. The committee meets roughly eight times a year on a pre-scheduled calendar, and each meeting concludes with an announced interest rate decision, a written statement, and — at some meetings — a press conference from the Fed Chair.

The interest rate the FOMC sets (the federal funds rate) influences borrowing costs throughout the entire US economy and, by extension, global markets, since the US dollar and US interest rates sit at the center of so many cross-asset relationships covered in the intermarket analysis lesson. Raising rates generally aims to cool an overheating economy or fight high inflation; cutting rates generally aims to stimulate a slowing economy.

Markets often react as much — sometimes more — to the accompanying statement and press conference as to the rate decision itself, since the actual decision is frequently already anticipated and priced in beforehand. Traders parse the language closely for signals about future policy — phrases suggesting the committee is leaning toward further hikes, cuts, or a pause are often what actually moves markets, more than a rate change that had already been widely expected.

Central banks in other major economies (the European Central Bank, Bank of England, Bank of Japan, and others) hold equivalent scheduled meetings and have a similar market impact on their respective currencies — the FOMC gets particular attention globally because of the US dollar's central role in global trade and finance, but the same underlying dynamic (rate decisions and forward guidance driving currency and broader market moves) applies to every major central bank's meeting calendar.