Understanding the Federal Reserve Interest Rate Decision

Every trader pays close attention to the Federal Reserve Interest Rate Decision.

So, what is it, and how does it impact financial markets?

The Federal Reserve Interest Rate Decision is a policy announcement by the Federal Reserve's Federal Open Market Committee (FOMC).

It is one of the monetary policy tools the US Federal Reserve uses to control the country's economy.

As the Federal Reserve's policy-making body, the Federal Open Market Committee meets eight times annually to assess economic conditions and set monetary policy to achieve the two main goals: full employment and stable prices.

At each meeting, the FOMC reviews a range of economic indicators such as inflation, employment, and GDP growth.

Based on this analysis, the committee decides whether to increase, decrease, or leave the federal funds rate unchanged.

When the FOMC decides to raise interest rates, it signals that it wants to slow down economic growth and keep inflation in check.

Conversely, when the FOMC lowers interest rates, it tries to stimulate economic activity and encourage spending and investment.

The Federal Reserve Interest Rate Decision is typically released on a Wednesday at 2:00 pm ET following the conclusion of the FOMC meeting.

When the Decision is released, it can significantly impact financial markets and the global economy.

When the FOMC raises interest rates, it increases the cost of borrowing for companies, resulting in lower profits and a decrease in the stock market.

Conversely, when interest rates are lowered, companies' borrowing costs decrease, leading to higher profits and an increase in the stock market.

For the bonds market, when interest rates are raised, the price of bonds typically falls as new bonds issued at higher interest rates become more attractive, decreasing demand for existing bonds.

However, when interest rates are lowered, the price of bonds usually rises as existing bonds become more attractive, increasing demand for existing bonds.

As for the US dollar, raising interest rates typically increases its value because higher rates make USD-denominated assets more attractive, thus increasing demand for the currency.

Conversely, lowering interest rates usually results in a decrease in the value of the USD as lower rates make USD-denominated assets less attractive, leading to a decrease in demand for the currency.

However, it is important to note that the Federal Reserve Interest Rate Decision is just one of many factors that can impact the financial markets.

When making investment decisions, you should always consider your investment goals and risk tolerance.