Federal Funds Rate Decision Expected Today
The markets are watching the FOMC meeting on Wednesday to see if the federal funds rate will be changed.
Those interest rates are determined by the Federal Open Market Committee (FOMC). They meet eight times every year to determine what the target federal funds rate should be- whether to increase, decrease, or keep it the same. Setting that rate is part of the Federal Reserve’s monetary policy, and a meeting is scheduled for later today to announce what will happen to that rate.
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The expectation is that the rate will not be changed. The Federal Reserve will be looking at a few key indicators to determine if the rates should be altered at all or left the same. The broad indicator they will consider is inflation, with numbers from jobs reports, CPI and PPI fed into that to determine whether inflation is increasing or decreasing.
Market Effects of FOMC Decision
The Fed said before that it wants to wait until the inflation rate is approaching 2% at the very least before making any cuts. If they see good progress down to 2%, then the interest rates can be lowered. US inflation is currently at 3.15%. They understand that any rate cuts will negatively affect the US dollar’s strength as well as stock market prices. It could also have a knockdown effect on oil prices and cryptocurrency trading.
The federal funds rate tells commercial banks what rate to lend and borrow at with their excess reserves, and it goes into effect immediately. So, if the FOMC makes a decision on the interest rates, that will ripple down into the markets very quickly.
Setting the interest rate is meant to stimulate economic growth, so the Fed will not make any changes there unless they believe it will help the economy to do so. They will be working toward a long-term goal of improved economic growth, but they understand that the short term effects could be painful for various markets.
The stock market closed up on Tuesday and could open high for Wednesday. The market has been slightly up recently in anticipation of positive news to come out of the FOMC meeting.
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