The Federal Reserve Board, referred to as the Federal Reserve, is the central banking system of the United States, which is responsible for formulating the monetary policy of the United States. The Fed's economic policy and public statements were the most anticipated trading events of the year because of its far-reaching impact on financial markets.
The Federal Reserve is responsible for buying and selling U.S. government securities in financial markets and setting interest rates and statutory reserves. The Fed naturally has a dual mission, and its policy makers need to maintain price stability and achieve full employment. As a result, the public statements of the Fed and its managers are closely watched by traders because even small changes in monetary policy and the federal funds rate can cause huge waves in the market.
Federal Open Market Committee
The Federal Open Market Committee (FOMC) consists of twelve members: seven members of the Federal Reserve Board, the President of the Federal Reserve Bank of New York and four of the remaining 11 Reserve Bank presidents (who serve in rotation for one year).
For traders, markets are particularly volatile during FOMC meetings because any change in the federal funds rate affects a range of economic variables, such as short-term interest rates, exchange rates, long-term interest rates, job output, and the prices of goods and services.
The Federal Open Market Committee meets eight times a year to discuss monetary policy changes, examine the economic and financial environment, and assess price stability and employment output. The meeting is held every six weeks. Four of these meetings provided summaries of economic forecasts (SEP), followed by a press conference by the Chairman. The minutes of the meeting were released three weeks after the policy decision was made.
Trade according to the decisions of the Federal Reserve
The Fed provides a lot of data that can affect the market. In addition to studying the Fed's headline interest rates, traders also study press releases issued after the meeting, which outline the state of the economy. As some of the information in the press release may be expected to change policy at future meetings, the content of such press releases may catch market participants off guard. As a result, traders need to pay special attention to press releases, speeches and other public events issued by Fed members between meetings of the Federal Open Market Committee.
There are many factors to consider when trading before and after FOMC meetings, but with some insight and careful preparation, traders can find many trading opportunities throughout the year.
Source of course: CME