Fed rate decisions (FOMC)

What is the FOMC and what does it decide?

The FOMC (Federal Open Market Committee) is the committee that sets the Fed's monetary policy. It has 12 voting members: the seven members of the Fed's Board of Governors, the president of the New York Fed and four of the other eleven regional Fed presidents on a rotating basis. It is chaired by the Fed Chair.

Its most watched decision is the target range for the federal funds rate. This is a range, a quarter of a percentage point wide, for the rate at which banks lend to each other overnight. Changes are usually made in steps of 0.25 points; larger steps have also been seen. The committee also makes decisions about the Fed's balance sheet.

The schedule and decision day

1. Eight scheduled meetings a year Meetings are held roughly every six weeks and most last two days. Dates are published a year ahead; unscheduled meetings can be held if needed.
2. 14:00 ET: the statement The statement with the decision and its reasoning is released on the last day of the meeting. That is 18:00 UTC during US daylight saving time and 19:00 UTC in winter.
3. 14:30 ET: the press conference The Fed Chair explains the decision and takes questions. Markets look here for hints about next steps; the reaction can come as a second wave after the statement.
4. The March, June, September and December meetings At these four meetings the Summary of Economic Projections (SEP) is also published. Its dot plot shows, as one dot each, the rate level each participant sees as appropriate for the coming years.
5. Minutes three weeks later The minutes of the meeting are published three weeks after the decision, also at 14:00 ET. They show differences of view within the committee in more detail.

How the market's expectation is followed

Prices of futures tied to the federal funds rate imply what the market expects the rate to be in the future. Probability tools calculated from these prices show what probability the market gives to a hold, a cut or a hike at the next meeting.

These probabilities are not a forecast but a summary of current pricing. They can change from day to day with new data and officials' remarks. If the probability is close to one hundred per cent by decision day, the decision itself may be largely priced in; attention then shifts to the statement, the projections and the press conference.

What to look at on decision day

• Decision versus expectation: the rate decision compared with the market-implied probability.
• Changes to the statement: wording added or removed compared with the previous statement.
• The dot plot: at projection meetings, how participants' expected rate path has changed from the previous projections.
• The press conference: the signals given about next steps. They can read as more dovish (leaning towards easing) or more hawkish (leaning towards tightening).
• Dissents: whether the decision was unanimous, and which way any dissenting members leaned.

Because rate expectations can affect risk appetite through the dollar and bond yields, crypto often reacts to Fed decisions too. This is a tendency; the direction and size of the reaction vary from one period to another.

What it shows, what it does not prove

Often confused with

• Priced in: why expectations matterThe decision itself is often priced in beforehand; the reaction is usually decided by the unexpected part, namely the statement, the projections and the press conference.
• Bond yields and the yield curveBond yields are set by the market and the federal funds rate by the Fed; the two are related but not the same thing.

Related pages

• MacroeconomicsPriced in: why expectations matter
• MacroeconomicsInflation data (CPI, PCE)
• MacroeconomicsHow to read an economic calendar
• MacroeconomicsBond yields and the yield curve