FOMC is the heart of financial decision-making that sends shockwaves through the global markets.

Investors worldwide are closely watching the Federal Open Market Committee (FOMC) meetings because every time the FOMC makes a decision, markets—stocks, gold, currencies, and especially bonds—become highly volatile and unpredictable. Many still wonder: what exactly is the FOMC? Why does it have such influence over the global financial markets? And what points should investors understand?

What is the FOMC? The Memory Bank of the Global Financial Market

The FOMC is the Federal Open Market Committee, the monetary policy body of the U.S. Federal Reserve (Fed). It is one of the most important agencies within the Fed, consisting of 12 senior officials with the authority to set monetary policy—controlling interest rates, managing liquidity, and maintaining economic stability in the U.S.

The main responsibilities of the FOMC are twofold: (1) to maintain price stability by controlling inflation, and (2) to promote employment, which involves monitoring employment figures outside the agricultural sector. After each meeting and policy decision, the FOMC announces its stance publicly.

The reason the FOMC influences global markets is because its measures directly affect interest rates and U.S. Treasury yields. The U.S. bond market exceeds $51 trillion, so FOMC actions have a massive impact on global capital flows.

FOMC Members: The Controllers of U.S. Money Supply

FOMC decisions depend on data and the judgment of its members. Understanding the perspectives of each member is crucial. The current Chair is Jerome H. Powell, from the Federal Reserve Board. The Vice Chair is John C. Williams from the New York Fed.

The 12 FOMC members include:

• 7 from the Federal Reserve Board: Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Philip N. Jefferson, Adriana D. Kugler, Christopher J. Waller, and Chair Powell.
• 1 from the New York Fed: John C. Williams.
• 4 from other regional Fed banks: Austan D. Goolsbee (Chicago), Patrick Harker (Philadelphia), Neel Kashkari (Minneapolis), and Lorie K. Logan (Dallas).

Each serves a one-year term, with rotations bringing in new members, resulting in diverse viewpoints on monetary policy.

Frequency and Details of FOMC Meetings

The FOMC holds 8 meetings annually, roughly every 6 weeks, to continuously monitor and evaluate policy. Each meeting lasts two days, with a final statement released on the last day, usually by 2:00 p.m. Washington D.C. time (around 2:00 a.m. Thailand time).

Investors should prepare for these meetings, as the policy statements often trigger market volatility.

FOMC’s Tools for Monetary Control

To achieve its policy goals, the FOMC uses three main tools called Open Market Operations (OMOs):

Buying U.S. Treasury Bonds

When the FOMC wants to increase liquidity, it purchases Treasury bonds, injecting cash into banks and financial institutions for lending and investment. This expansionary policy is used to stimulate the economy but can lead to higher inflation and a ballooning Fed balance sheet.

Selling U.S. Treasury Bonds

Selling bonds or reducing holdings withdraws money from the financial system. This contractionary policy is used to cool down overheating economies and combat inflation, leading to a shrinking Fed balance sheet and slowing inflation.

Adjusting the Federal Funds Rate (FFR)

The FFR is the overnight interest rate at which banks lend to each other or to the Fed. When the FFR is high, banks borrow less, reducing money supply; when low, borrowing increases, boosting liquidity.

Through these tools, the FOMC controls liquidity, which directly impacts borrowing costs, asset prices, and overall financial market directions.

Reading the Dot Plot: Future Policy Expectations

Beyond the policy statement, investors should follow the Dot Plot—a chart showing each FOMC member’s interest rate projections for upcoming meetings. Each dot represents a member’s view.

The Dot Plot helps interpret the FOMC’s future stance: if most dots are rising, it indicates expectations of rate hikes; if falling, rate cuts are anticipated.

Why is the FOMC Important to Investors?

The FOMC is a key driver of global financial markets. Its policy shifts have direct effects:

• Stock Markets: Higher interest rates tend to make bonds more attractive than stocks, leading to stock declines.
• Gold Market: Lower interest rates increase gold’s appeal due to lower holding costs.
• Currency Markets: FOMC policies influence the strength of the U.S. dollar.
• Bond Markets: U.S. Treasury prices are directly affected by FOMC decisions.

Understanding that the FOMC is the U.S. monetary policy authority helps investors track its meetings and decisions. This knowledge is vital for strategic investing, as it allows better prediction of market movements and smarter investment choices.