Powell raised rates by a whopping 25 basis points yesterday. The Federal Reserve's meeting is one of the most significant events in the financial world. It’s where decisions made by the Federal Open Market Committee (FOMC) can have a ripple effect on the economy and financial markets.
In a decision that met expectations, the Federal Reserve has increased interest rates by one quarter of a percentage point. By raising rates, the Fed is continuing its fight against inflation but holding off on a more aggressive rate move that might spook markets after weeks of bank turmoil.
Below we'll explore what happens during the Fed's meeting and why it's so important. Here’s what you need to know.
What is the FOMC Meeting?
The Fed's meeting is held eight times a year and is attended by the members of the Federal Open Market Committee (FOMC). The FOMC is responsible for setting monetary policy, which includes deciding on the target for the federal funds rate. This rate is the interest rate at which banks lend money to each other overnight, and it has a ripple effect on the economy.
During the meeting, the FOMC reviews economic data and assesses the state of the economy. The members discuss issues such as inflation, employment, and economic growth, and they consider the impact that their decisions will have on these factors. They also examine the financial markets and evaluate the risks and opportunities that may arise.
Once the FOMC has assessed the economic conditions and risks, they decide on a course of action. This could include changing the target for the federal funds rate, adjusting the Fed's balance sheet, or implementing other policies to influence the economy.
The decision made by the FOMC during the meeting is closely watched by everyone around the world. This is because the Fed's actions can have a significant impact on the economy and financial markets.
For example, if the Fed raises interest rates, this can slow down economic growth and reduce inflation. On the other hand, if the Fed lowers interest rates, this can stimulate economic activity and increase inflation.
Investors are particularly interested in the Fed's meeting because of its potential impact on the stock and bond markets. Changes in interest rates can affect the price of stocks and bonds, and investors often adjust their portfolios based on the Fed's decisions.
What Did We Learn This Week?
While the full details are still to come, there were no major surprises to investors from this week's FOMC meet. The Fed has hiked rates by 25 basis-point to the 4.75-5% range, in line with broad expectations.
This is the Fed’s ninth consecutive rate hike since it began tightening the federal funds target rate back in March of 2022.
Key Highlights
Here are key takeaways from the Federal Reserve's interest-rate decision and statement on Wednesday:
Last Thoughts
Overall, the Fed has taken on a cautious stance and while its stance has been a clear shift from the previous meeting, mounting economic risks are now the broader concern. To conclude? The Fed thinks it has more work to do in wrangling rapid price increases, but it is also navigating a fraught moment as problems in the banking system hang over the economy — and the central bank’s policy path.
Keeping a close eye on the Federal Reserve's meetings and their outcomes is crucial for investors and retirees alike. The decisions made during these meetings can greatly affect the economy and financial markets, and it's important to have a solid investment strategy in place to navigate any potential changes.
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