FOMC Rate Decision

Eight times a year the Federal Open Market Committee meets in Washington for two days and sets a target range for the federal funds rate, the rate at which banks lend reserves to one another overnight. Its twelve voting members are the seven Board governors, the president of the New York Fed and four of the other eleven regional presidents, who rotate annually. The decision is published in a short statement, followed half an hour later by the Chair's press conference.

The rate change itself is usually well telegraphed. Futures markets price each meeting weeks ahead, and Fed officials seldom like to surprise. What moves markets is more often the language: a changed phrase in the statement, a dissent, or the Chair's answers under questioning. At four of the meetings, in March, June, September and December, the committee also releases its Summary of Economic Projections, including the 'dot plot' of each participant's expected path for rates. Shifts in the median dot have historically produced some of the largest moves in Treasury yields and the dollar on any given day.

Beyond the policy rate, the Fed adjusts the interest it pays on reserve balances and the size of its securities portfolio. Changes to balance-sheet runoff are announced in the same statement and can matter for long-dated yields as much as the headline rate.

Because the dollar is the world's funding currency, a Fed decision tends to ripple into every asset class, from emerging-market currencies to gold, oil and equity indices on other continents. Unscheduled meetings are rare and have usually coincided with financial stress.