On Wednesday afternoon, in the US or in late evening in Europe, the Federal Reserve Open Market Committee made their most recent statement and comments on the US economy and their forecast for interest rates in the US.
Most foreign exchange analysts, traders and professionals pay close attention to this statement, they read and interpret every nuance of the presentation, to understand exactly what the US Fed is trying to tell the public, but they also try to figure out what they are thinking and what they might be doing in the near future. Newscasters, Reports, Market Analysts, Economist and Brokers all spend have their own interpretation of the words that make up the carefully crafted statement.
Wikipedia defines and explains The Federal Open Market Committee (FOMC), as a committee within the Federal Reserve System, is charged under United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasury securities). It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply. It is the principal organ of United States national monetary policy. The Committee sets monetary policy by specifying the short-term objective for the Fed’s open market operations, which is currently a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans).
The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.
The FOMC by law are required to meet a minimum of 4 times yearly, but in actually they meet between 5-8 times per year.
“Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members, nonmember Reserve Bank presidents, staff officers, the Manager of the System Open Market Account, and a small number of Board and Reserve Bank staff”
At the conclusion of each meeting, a consensus is reached by the board members and a directive is issued to the Federal Reserve Bank of New York. This directive serves as guidance to the Manager in terms of the every day-to-day open market operations. The directive states the FOMC’s objectives for long-run growth of certain key monetary and credit aggregates. It also sets forth operating guidelines for the degree of ease or restraint to be sought in reserve conditions and expectations with regard to short-term rates of growth in the monetary aggregates, along with their views on the economy in general.
The FOMC Statement Heard Around The Globe
On January 25, 2012 the FOMC meet and released their statement.
On the whole, they believed the economy was on an upswing, although they were still worried about the employment and housing situation. These were to be expected.
The surprise was their directives on interest rates. The Fed stated that they would hold interest rates at the current level until late 2014. Previously the Fed Reserve had stated they would hold the current rates through 2013.
This simple statement causes shockwaves in the global markets within minutes.
The USD dropped, gold soared rising over 35.00 per ounce and the euro surged. Currencies around the world skyrocketed against the dollar, while the US markets improved. If ever the Fed Reserve Committee wanted to shake the global markets in one short quick statement markets around the globe reacted.
Originally posted here
