Whether you’re a day trader or a longer term investor, the FOMC meetings offer you a good indication of the US economy. You may not be able to predict how the market will do in the short term, but you can prepare yourself for a possible rate hike. Traders and investors have been expecting the Federal Reserve to slow down the rate hikes it has been pushing. They had hoped for the Fed to reverse course from its hawkish stance after Chair Jerome Powell’s speech at Jackson Hole. The central bank has been trying to reduce inflation. However, core inflation still is well over the Fed’s goal of 2%. It has increased a bit more than expected and is up more than 6% year-on-year.
Ready For Next Fed Meeting
The Fed has tried to get prices under control by hiking interest rates. It has also launched several rounds of asset purchases, known as quantitative easing, or QE. These purchases include Treasury bonds, mortgage-backed securities, and other debt. As a result, the yield on the two-year Treasury has fallen to 4.32% from 4.62%. This is the first time since 2008 that the two-year yield has fallen this steeply. Whether the dollar gains or loses strength against the rest of the world’s currencies depends on a host of economic variables. This includes the value of its interest rate and the ratio of its currency to GDP.
A country’s central bank has a wide range of tools to influence financial conditions, and the strength of its currency. It moves its interest rate higher or lower to stimulate the economy. It purchases government debt and buys securities backed by mortgages. A higher interest rate may stimulate more borrowing, but it will also increase the cost of borrowing money and the cost of servicing existing debt. These increases will translate into higher costs for businesses and consumers. These costs will also make the dollar more expensive to use for imports.
Preparing For A Possible Rate Hike
Whether or not you are interested in next fed meeting, you may be wondering what to do if the Fed decides to raise interest rates. The first thing to do is to understand how the central bank makes its decisions. This can be done by studying economic forecasts and major announcements. If the economy is in good shape, the Fed will likely remain cautious and keep rates at a reasonable level. This could help encourage borrowing and stimulate the global economy. If the economy is weak, the Fed may cut rates to entice borrowing.
Inflation is a key concern for US central bankers. They worry that inflation will spiral if they stop raising rates too soon. This is why the Fed has been pushing rates higher in recent months. However, they believe that a sustained period of below-trend growth will be necessary to get inflation under control.
FOMC Meetings Is Indicator Of The US Economy
During the Federal Open Market Committee meetings, the members discuss the monetary policy of the United States and its impact on the world economy. The body consists of twelve voting members, including the President of the Federal Reserve Bank of New York. The members consider several factors to make a decision, including the state of the labor market and the economy’s growth. They also look at inflation and price stability. Inflation is the rate of price increases. The FOMC aims to keep inflation under two percent. This will help protect real incomes and sustain economic growth over the medium term. In the second half of 2013, the labor market was improving. The unemployment rate declined noticeably. However, a temporary factor held down economic activity in the first half of 2011.
The Federal Open Market Committee continues to provide additional monetary accommodation in order to support a stronger recovery in the United States. During the 2007-08 financial crisis, the Federal Reserve introduced non-traditional tools to decrease borrowing costs. These included the establishment of a discount rate and paying interest on reserves. During the subsequent recession, the balance sheet increased. The FOMC has also been increasing the size of its balance sheet. This has helped reduce the stock of privately held debt and improve financial conditions.
The Bottom Lines
The Fed began directing the Desk to purchase assets in late 2008. These purchases helped the economy recover from a severe recession. They also lowered long-term interest rates and supported the mortgage market. The Fed has a number of additional tools it can use to support the economy. The most common of these is creating money out of thin air to purchase government securities and ETFs.
