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Fed Interest Rate Decision

Published:

The Federal Open Market Committee's decision on the federal funds rate target and related US monetary-policy settings.

Central BanksVery High volatilityFederal Reserve Interest Rate DecisionFOMC Interest Rate DecisionFOMC Rate DecisionFederal Funds Rate Decision

Full explanation

The Federal Open Market Committee (FOMC) announces its decision on the target range for the federal funds rate, the Federal Reserve's main policy interest rate. The decision is a core part of US monetary policy and reflects the Committee's assessment of inflation, employment, economic activity and financial conditions. The accompanying statement may also set out balance-sheet policy and explain how officials view the outlook. Scheduled FOMC meetings normally conclude with a policy statement, and some meetings also include economic projections and a press conference.

Why traders watch it

An unexpected change in the federal funds rate target, the policy statement or associated guidance can quickly affect the US dollar, Treasury yields and expectations for future Federal Reserve policy.

Market interpretation

US dollar pairs
Can move as participants reassess the likely path of US interest rates relative to rates in other economies.
US Treasury yields
Can move as investors reprice expected policy rates, inflation risks and the economic outlook.
Global equities and risk-sensitive markets
May react to changes in expected borrowing costs, liquidity conditions and the Fed's assessment of the economy.

Stronger vs weaker outcomes

A higher-than-expected policy rate, or communication that places greater emphasis on inflation risks, may be interpreted as a tighter policy stance than markets expected. A lower-than-expected rate, or communication that places greater emphasis on supporting employment, growth or easier financial conditions, may be interpreted as a looser stance than expected.

Stronger than expected

A rate decision above market expectations, or language seen as more focused on inflation risks, may be read as a tighter-than-expected policy stance.

Weaker than expected

A rate decision below market expectations, or language seen as more focused on supporting activity or employment, may be read as a looser-than-expected policy stance.

In line with expectations

Compare the rate decision and policy statement with market expectations, then consider the projections and press conference where provided.

Typical volatility

Very High. The headline rate decision may be widely anticipated. Market reactions can depend more on the statement, projections, press conference, vote split, balance-sheet details and changes in expectations for later meetings than on the rate alone.

Trading considerations

  • Check the scheduled release time and whether the meeting includes economic projections and a press conference.
  • Compare the decision, statement and any implementation note with prevailing market expectations rather than considering the rate outcome in isolation.
  • Expect liquidity conditions and bid-ask spreads to change around the announcement and press conference.
  • Follow revisions to the expected path of policy rates, not only the current target range.
  • Review the subsequent FOMC minutes for additional detail on the discussion and voting dynamics.

Educational guidance only — never a trading signal or recommendation.

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