Get to Know the FOMC and Its Role in the Financial Markets

What Organization is the FOMC and How Does It Influence Global Markets

The Federal Open Market Committee – FOMC – is a key component of the US financial system, responsible for controlling monetary policy through open market operations. It consists of 12 senior officials with decision-making authority regarding monetary actions.

This organization operates under the Federal Reserve (FED) and has two main objectives: maintaining price stability (measured by inflation rate) and supporting employment, especially non-farm payroll employment.

Why FOMC Policies Shake Global Markets

Whenever the FOMC holds a meeting, stock markets, gold markets, foreign exchange markets, and especially US government bond markets experience unpredictable volatility. This is because FOMC’s monetary policy decisions directly impact interest rates and US Treasury yields.

The US Treasury bond market is the largest money market in the world, valued at over $51 trillion. Therefore, any policy change decided by the FOMC has widespread effects globally, influencing stock investments, commodities, and various currencies.

Current Structure and Members of the FOMC

The FOMC comprises 12 members divided as follows: 7 from the Federal Reserve Board of Governors, 1 from the New York Fed branch, and 4 elected from other Federal Reserve districts. Each member serves a one-year term before rotation.

Currently, Jerome H. Powell serves as Chair, with John C. Williams from the New York Fed acting as Vice Chair. Other key members include Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Goolsbee, Patrick Harker, Philip N. Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K. Logan, and Christopher J. Waller.

Each member brings their own insights and analysis to the meetings, so studying their viewpoints can help predict future decisions.

Policy Tools Used by the FOMC

To achieve its goals of price stability and employment, the committee employs three main tools:

Purchasing Government Bonds: Injects liquidity into the financial system. This is often used to stimulate economic growth, but carries risks of high inflation and expanding the central bank’s balance sheet.

Selling Government Bonds: Removes liquidity from the system. Used to slow economic growth and control inflation, along with reducing the FED’s balance sheet.

Adjusting the Fed Funds Rate (FFR): The overnight interest rate banks and financial institutions use to borrow from the central bank. When the FFR increases, financial institutions reduce borrowing, decreasing the money supply. Conversely, lowering the FFR encourages more borrowing and circulation.

Meeting Frequency and 2024 Schedule

The FOMC holds 8 meetings annually, roughly every six weeks, to monitor policy effects and economic conditions. Each meeting lasts two days, with results announced on the final day no later than 2:00 PM local US time or approximately 02:00 AM Thailand time.

The 2024 meeting schedule is: January 30-31, March 19-20, April 30-May 1, June 11-12, July 30-31, September 17-18, November 6-7, and December 17-18.

Dot Plot: A Tool to Understand Decision Trends

Beyond direct policy changes, investors should closely observe the Dot Plot, a chart released alongside each FOMC meeting minutes.

Each dot represents a member’s view on the appropriate interest rate level for future meetings. This graph allows investors to anticipate the FOMC’s decision trajectory, providing valuable insights for investment planning.

Summary: FOMC as the Main Driver of Global Financial Markets

In conclusion, the FOMC is a crucial agency with the authority to set US monetary policy, comparable to the Monetary Policy Committee (MPC) of Thailand. It regularly meets to make policy decisions.

The policies driven by the FOMC have widespread effects on the financial system by controlling interest rates and market liquidity. Therefore, investors worldwide, regardless of their market focus, must continuously monitor FOMC movements to adjust their investment strategies accordingly.