In the foreign exchange market, the decision of the Federal Open Market Committee ( FOMC) on interest rates is the most powerful, and when market news gives traders an opportunity to make money.
The discount rate or federal funds rate is set by the FOMC and because interest rates are set higher to attract foreign investment and thus counter inflation during inflation. And a major factor affecting the strength of the dollar is rising spending during the recession.
What is FOMC?
The FOMC stands for the Committee on the Federal Open Market and is a branch of the US Federal Reserve that pilots monetary policy direction.
The FOMC meeting minutes provide investors with a foretaste of the interest rate decisions of the US Federal Reserve and have become one of the most anticipated risks on the US dollar and related data calendars for pairs.
There are eight scheduled meetings each year for the FOMC.
The majority of appointment minutes scheduled are up to 3 weeks after the date of the policy issue.
For this strategy, data release time is very important, and although its duration may vary, it is usually scheduled for 07:15 GMT, i.e. 02:15 EST.
On the Federal Reserve website, the dates and times of the FOMC meeting statements are available.
The Federal Open Market Committee (FOMC) consists of twelve members:
The seven members of the Federal Reserve System’s Board of Governors.
President of the Bank of New York Federal Reserve.
On a rotating basis, four of the remaining 11 Reserve Bank Presidents complete a one-year term.
The following four groups of banks fill the rotating seats.
One bank president of each group:
Philadelphia, Boston, and Richmond
Chicago and Cleveland
St. Louis, Atlanta, and Dallas
Kansas City, Minneapolis, and San Francisco
Non-voting presidents of the Reserve Bank attend committee meetings, participate in discussions, and review the economic and political powers of the committee.
Meetings with FOMC and why they are important
Scheduled FOMC meetings are held in Washington , D.C. eight times a year, but the FOMC can be met more frequently if additional meetings are required under economic circumstances. At FOMC meetings, to make well-informed decisions, the committee evaluates past and anticipated economic developments. Factors to consider include trends in prices and wages,
Consumer revenue and expenditure habits, interest rates, growth in GDP, trends in lending and fiscal policy.
It all helps to form and present their views to each member. There is a consensus on the appropriate policy at the end of every US FOMC meeting and the Fed makes the necessary changes to implement it. The Fed is generally provided in the context of operating guidelines following future operational guidelines. When deciding whether to limit or simplify monetary terms.
In the table below, the Fed’s announcement dates and FOMC meeting schedule for 2017 are presented. Around these dates, traders should be very careful, as these meetings could have a greater impact on the market. In general, staying away from trading on FOMC meeting dates is wise and waiting for the dust to settle to get a clearer picture of where the market is going after the Fed ‘s announcement.
The committee reviews the nation’s economic and financial situation and, as mentioned, determines the appropriate monetary policy through open market operations.
One of the key goals of the Fed is to control inflation in the country by setting inflation targets.
The committee also aims to meet this goal by setting a target for the federal funds rate (the price at which banks borrow overnight from each other).
The sale to banks of government securities reduces the amount of funds they will be able to lend and effectively raises interest rates.
Buying government securities from banks, on the flip side, increases their available funds, thereby reducing interest rates.