The Federal Reserve's Open Market Committee (FOMC) meets every six weeks or so, and after each meeting, they announce whether or not the key interest rate will go up. Of course, this will be big news for Wall St. investors (key interest rates impact how much everyone has to pay to borrow money, so the announcement both affects how much companies are paying to get loans and the overall economy in general...so, yeah, it's a big deal).
The trading on Fed announcement day is an example of the announcement effect, any time trading is likely to pick up due to an important pre-planned revelation. Other big announcements that might affect trading could be the unemployment rate, consumer confidence, Gross Domestic Product, inflation, or any other change to monetary policy.
Interest rate changes can also have an announcement effect on foreign exchange markets as an increase could raise the exchange rates. So you don’t want to miss a “Fed day” or any other big federal news. The announcement moves the markets like it's eating a jar of prunes.
Related or Semi-related Video
Finance: What is the Federal Open Market...15 Views
finance a la shmoop what is the Federal Open Market Committee... FOMC! come say it
with me FOMC yeah that's the noise of meatball makes when it hits the floor it [Meatball lands on the floor]
also happens to be the acronym for the Federal Open Market Committee and part
of its purpose in life is to manage financial outcomes through monetary
policy all right well the Federal Reserve pulls three levers of monetary [3 Levers appear]
policy discount rates open market operations and bank reserve requirements
those are the big three the big three monetary policies used to try and [Monetary policies appear]
control the economy well the font is responsible for the open market
operations part of that equation it tries to fight the twin evils of [Person pulls open market lever]
unemployment and inflation and among other things if unemployment is high
well in general the FOMC will seek to increase the supply of money by holding
back on sales of government paper like t-bills bonds notes and all that good
stuff leaving more cash sloshing around in the [Dollar bills appear]
marketplace and hopefully encouraging the cost of renting money or interest
rates to decline like encouraging people to borrow because rates are cheap well
when people can borrow more cheaply yes they're incentivized to spend more at [Person picks up stack of cash]
the mall on earrings and rings for other places well it works in the opposite
direction as well with the FOMC fearing inflation while they'll issue
lots of government paper sucking out the excess cash that was previously in the [Money supply meter declines]
marketplace and likely causing interest rates to rise right so cash will be less
available and people want more to rent their precious dollars as interest got
it okay well the key issue remains that the FOMC is making money more expensive
when it does that when an issues paper sucking cash out of the system it's hard
concept for most people including me to understand here
well the FOMC called eight secret very dan Brown like meetings a year to look [Months of year appear on calendar]
through reams of data and decide what policy should be note that they're
applying monetary policy here to do their bidding not fiscal policy the gist
is that the committee is the one sitting atop monetary policy in the US and it's
the committee who makes the decisions on the big three dials they can turn one [Committee standing by 3 dials]
two and three they can sift through data on the economy jobs inflation bang
fear surveys etc and then make decisions about what to do or you know what not to
do I remember that Soup Nazi from Seinfeld no bonds for you [Nazi holding a bond]
Up Next
What are a 10K and a 10Q? A 10K is an annual report and a 10Q is a quarterly report. These reports are filed by public companies and contain vital...
What are the Santa Claus rally and the January effect? We really hope it involves Wall Street professionals dressing in Santa suits.
What's a lock-up agreement? We think it has something to do with a shiv, but let's watch this video, just in case.
What is an 8k? An 8k is a report filed by a company that reports any big changes to the company. Usually these changes are things like new acquisit...