How does the Federal Reserve meeting affect traders?
The Federal Open Market Committee meeting is often considered one of the most important dates on traders' calendars for one main reason: interest rates.
The Federal Open Market Committee can raise or lower the federal funds rate in the United States through a trio of policy tools (open market operations, the discount rate, and reserve requirements).
This central change in rates will translate to other interest rates, including foreign exchange rates and bond prices, which can have a significant impact on traders.
Which markets are affected by the Federal Open Market Committee?
When the Federal Open Market Committee decides to raise or lower interest rates, the effects will ripple through global financial markets. Here are some specific markets to watch:
Forex: Any change in interest rates will play a role for the U.S. dollar, the most traded currency in the world so far.
Indices: Higher interest rates tend to be bad for stocks, while lower rates may be a boon.
Bonds: Changes in interest rates are often significantly reflected directly in U.S. bonds.
Therefore, traders and investors around the world will try to predict where monetary policy will head after each Federal Reserve meeting, adjusting their strategies and investment portfolios accordingly.
