US: FOMC Meeting Announcement

Wed Oct 28 13:00:00 CDT 2015

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Federal Funds Rate - Target Level 0 to 0.25% 0 to 0.25%

In a dovish statement with, however, a couple of hawkish overtones, the Fed kept policy unchanged at today's FOMC meeting citing lack of job growth and below-target inflation.

In a clearly dovish turn, the pace of job gains is now described as having "slowed" from being "solid" in the September statement. Further, the unemployment rate is now described as "steady" vs "declining" in September.

But there is something for the hawks. Growth in household spending and business investment are now both upgraded, to solid from moderate. And the October statement, unlike the statement in September, excludes a reference to global economic risks but does repeat that the Fed is monitoring global developments carefully.

Housing is still described as improving with net exports, however, still described as soft. Descriptions of inflation are little changed.

The statement is definitely highlighting December 15 & 16 as a possible meeting for action, saying the decision at that time will turn on improvement in jobs and greater confidence that inflation is beginning to move toward the Fed's 2 percent goal. So there may be a showdown ahead after all! The vote at this meeting, like it was in September, was 9 to 1 with Richmond's Lacker once again pushing for an immediate rate hike.

The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is the fed funds rate. The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The Fed announces its policy decision (typically whether to change the fed funds target rate) at the end of each FOMC meeting. This is the FOMC announcement. The announcement also includes brief comments on the FOMC's views on the economy and how many FOMC members voted for and how many voted against the policy decision. Since the last recession, the statement also includes information on Fed purchases of assets, so-called "quantitative easing", which affects longer-term interest rates. Also, a key part of the announcement is guidance on potential changes in policy rates or asset purchases.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and continues during the recovery. Fed asset purchases affect longer-term interest rates and, in turn, other financial sectors and the economy.

The Fed also began quantitative easing during the past recession and continues during the recovery. Fed asset purchases affect longer-term interest rates and, in turn, other financial sectors and the economy.

Econoday lists a separate "FOMC Meeting Begins" only for the first day of two-day policy meetings. Otherwise, "FOMC Meeting Announcement" serves the same purpose for one-day FOMC meetings since the announcement takes place just after the meeting concludes.

Eight times a year.