Understanding The Federal Open Market Committee (FOMC) as It Impacts the Market

PAMM Investments Forex Dollar

As we all know, every country has its Central Bank. The main job of this Bank is to maintain financial condition within its country. Like the other countries, The US also has its Central Bank, called US Federal Reserve Bank.  Different with other countries Central Bank, the US Central Bank has a wider role in dealing with global financial condition and making an economic balance all around the world. This US Federal Reserve Bank conducts several annual meetings, which are generally known as the Federal Open Market Committee (FOMC).

The main job of The Federal Open Market Committee (FOMC) is to maintain the money supply in the relation with the inflation and interest rate. Thus, the FOMC has authority to increase or decrease interest rate, and decide to buy or sell the government security products such as obligation. FOMC has eight annual meetings to discuss about the economic and financial condition within the existing period to decide whether to increase or decrease the US interest rate. The FOMC members will also discuss about money supply and decide if they need to sell or buy government stock and obligation or not.

During these meetings, FOMC will select the FOMC Presidents which represent certain states.  Special for New York State, the president will automatically continue his job without rotation. But for other states, there will be a rotation each year. At approximately three weeks after the FOMC Meeting, there will be a FOMC Minutes that is released to give information about prior meeting and the evidences of the policies taken.

For Forex trading, the FOMC Meetings have strategic impacts in determining reaction from traders. But, it doesn’t always automatically make a big change in market. Sometimes, after a FOMC meeting there is a big movement in the main currency, but sometimes it doesn’t change anything to the market condition. It depends on what’s happening during the meeting.

The most awaited information traders would like to know is about the interest rate. If the FOMC meeting indicated a future increase in the interest rate, market will soon react to this information. It may cause an over demand or in the contrary, it may cause a panic selling which -at the end- will cause the correction of the currencies.

To anticipate the market movement, it’s better for you to place an economic calendar and recognize when the FOMC meeting will be conducted. It will help you gathering information about the plan and the result of that meeting.

Happy trading in PAMM Investments !

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