What is the FOMC?

What is the FOMC?

The Federal Open Market Committee (FOMC) governs U.S. monetary policy. Eight scheduled meetings a year set the stance for interest rates, balance‑sheet plans, and forward guidance—key drivers of USD and global risk sentiment. Decisions ripple through Treasury yields, equity valuations, and, ultimately, FX pairs tied to the dollar.

Who Sits on the Committee

The FOMC includes the Federal Reserve Board of Governors, the New York Fed President (permanent voter), and a rotating set of regional Fed presidents. Beyond the vote, speeches and dissents from non‑voting members shape expectations between meetings and can move markets.

Policy Toolkit

• Federal funds rate: Sets overnight borrowing costs and anchors the short end of the curve.
• Balance sheet (QE/QT): Purchases or runoff of assets adjust liquidity and term premia.
• Forward guidance: Statements, press conferences, and meeting minutes steer expectations.
• SEP and dot plot: Quarterly projections reveal members’ views on growth, inflation, and the policy path.

Trading Around FOMC

• Expect spread widening at the release; size down or use limit orders.
• Map hawkish/dovish scenarios and key phrases ahead of time.
• Listen to the press conference—Q&A regularly triggers the real move.
• Confirm with rates: if 2‑year yields don’t follow, fade FX overreactions.

Blackout, Minutes, and SEP

A pre‑meeting blackout limits Fed communication. Minutes released weeks later add nuance on the internal debate. The quarterly Summary of Economic Projections (SEP) and dot plot often reset the expected path for rates—track changes in medians and dispersion across members.

Examples and Scenarios

If the Fed signals an earlier‑than‑expected hike cycle while the ECB stays on hold, 2‑year USD‑EUR spreads widen and EUR/USD typically trends lower. Conversely, if inflation collapses and markets price rapid Fed cuts, high‑beta and carry pairs can rebound as USD real yields fall. In commodity exporters, higher terms‑of‑trade plus rising domestic rates can supercharge currency gains, especially when global risk sentiment is supportive.

Watch how quickly futures reprice after key data. A quarter‑point shift in the expected terminal rate often drives multi‑figure FX moves when positioning is offside. During late‑cycle slowdowns, curves invert; if markets begin to price synchronized cuts, carry trades can unwind rapidly as volatility jumps.

Common Pitfalls

• Trading the level, not the change—FX reprices the path more than today’s rate.
• Ignoring inflation expectations—nominal yields can rise while real yields fall.
• Entering during data spikes—wait for rates to stabilize before committing.