What are the FOMC’s Goals?
Under the directive of the Congress of the United States of America, the FOMC has been charged with 2 very important goals or mandates. The first being the Price Stabilization, which is looked as the stability of inflation, and the other looks into Maximum Employment.
According to the FOMC, Price stabilization, or inflation, is considered to be at the optimal point of 2.0%, any higher or lower could affect the market adversely. Same goes to Maximum Employment as they see that being at 4.5%. However, an obscure 3rd objective is under the FOMC’s mandate and that includes Financial Market Stability.
How do they achieve their goals?
The decision of increasing or decreasing interest rates is a joint decision based on to the voting of the 12 members of the committee. Before each FOMC meeting, that usually takes place 8 times per year, the committee members receive written reports from the system staff on past and prospective economic and financial developments. After the discussion of these reports, the committee members and other Reserve Bank presidents turn to policy and finally reach a consensus regarding the appropriate course for policy.
Dovish VS Hawkish
The FOMC members are distributed on a scale from Dovish to Hawkish. The dovish tends to be pessimistic and views the economy in need for stimulation; therefore, they tend to decrease interest rates and thus increase money supply.
However, the hawkish are on the other extreme end with an optimistic view of the economy; therefore, they tend to increase interest rates and thus decrease money supply and control inflation.
The remaining policy members include a minority titled the “Centralists”. They usually look at the market and tend to be data driven, focusing on what actually is happening in the market.
Jerome Powell, chairperson of the FOMC and Federal Reserve, is considered to be a in Centralist; however, has a step closer towards hawkishness rather than dovishness.
How to Trade the FOMC
USD Strengthens Slightly
Please note that the above directional suggestions do not take into account the current Geopolitical or Market positioning pressures that could easily cause the opposite to occur. With this in mind, it is always beneficial to keep yourself abreast of the current market conditions when planning your trades.
THE FED FUNDS RATE
The fed funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. The current federal funds rate as of December 18, 2018 is 2.5%.
2018/2019 FOMC Meeting Dates
As mentioned earlier, the FOMC usually meets 8 times a year. Usually a week before the actual meeting takes place, a media blackout occurs where all FOMC members are forbidden from speaking in public in whatever form until after the result of the meeting has been released. Below is a table for the upcoming meeting dates and what was of the decision of the previous meetings and the market’s reaction. The dates of the Meetings can be found in the below Forex Calendar.
1. Longest Serving Chairman
William McChesney Martin Jr., served from April 2, 1951, to January 31, 1970, 19 years as the Chairman of the Fed. He served under five presidents.
2. Highest Historical Rate
In March of 1980, the FOMC hiked the Fed Funds Rate by 5.0% to reach an all-time high of 20%, for the main reason on combating a 14.6% inflation rate.
3. Highest Rate Hike
In October 1980, the fed recorded its highest hike of 6% from 12% to 18% in order to combat a 12.9% inflation rate and managed ease it down to 12.6%.
4. Largest Rate Cut
In November 1981, the Fed cut interest rates by 7%, from the highest rates of 20% to 13%, in order to combat the recession that began in July of the same year.