FOMC

1. Definition

FOMC (Federal Open Market Committee) is the branch of the Federal Reserve Board that determines the direction of monetary policy. * It is composed of 12 voting members: the 7 members of the Board of Governors and 5 Reserve Bank presidents (The NY Fed President is permanent).

2. Key Functions

They meet 8 times a year to decide on: 1. The Federal Funds Rate: The interest rate at which banks lend to each other overnight. This sets the baseline for all other interest rates (mortgages, credit cards) globally. 2. Open Market Operations: Buying or selling government securities (Treasuries) to control the money supply (QE vs. QT).

3. The Dot Plot

Released quarterly (March, June, September, December), the Dot Plot is a chart where each Fed official places a dot representing their projection for future interest rates. * It acts as a primary signal for the market to gauge the Fed's long-term outlook.

4. Market Impact

• "Don't Fight the Fed": A famous investment mantra. If the FOMC decides to drain liquidity (raise rates), it is extremely difficult for asset prices to rise.
• The market pays close attention to whether the committee is Hawkish (favoring higher rates to fight inflation) or Dovish (favoring lower rates to stimulate growth).