What is the FOMC meeting, and why is it important for investors?
The Federal Open Market Committee (FOMC) is the monetary policymaking body within the US Federal Reserve System responsible for setting interest rates and making decisions regarding monetary policy. During their eight meetings throughout the year, the decisions made have far-reaching implications for interest rates, market expectations, economic outlook, and inflation, making it essential for investors to closely follow and interpret the outcomes of these meetings. At each meeting, we will find out whether the interest rate has changed and what the Chair of the Federal Reserve, Jerome Powell has to say in his press conference.
How does the FOMC meeting impact international markets, and what should investors consider when investing globally?
The FOMC meeting has the potential to have a significant impact on international markets because investors around the world closely monitor US monetary policy decisions, particularly interest rate decisions, which can influence global capital flows, currency exchange rates, and investor sentiment, requiring investors to consider the potential spillover effects on their global investments and adjust their strategies accordingly. Generally speaking, the US leads the way and then other countries follow suit, so for many investors, keeping an eye on what happens in the US can be a sign of things to come.
How does the FOMC meeting impact the value of the US dollar and other currencies, and what implication does this have for investors?
The meeting’s impact on the value of the US Dollar and other currencies is significant, as changes in interest rates and monetary policy decisions can create interest rate differentials, introduce currency volatility, affect trade competitiveness, and influence global asset allocation decisions. The US Dollar is by far the most traded currency, so any movement can lead to secondary reactions elsewhere.
What are some key factors investors should consider when deciding whether to adjust their investment strategy based on the outcome of an FOMC meeting?
At these meetings, investors will pay close attention to the forward guidance, growth, and rate expectations, economic indicators, inflation outlook, and market sentiment. If there are considerable changes to what is already priced into the market, a hawkish or doveish meeting can considerably move markets for weeks and months to come. For example, if we start to hear about a lower interest rate environment, then it is likely that stocks will benefit but on the flip side, if the Federal Reserve mentions rates will stay higher for longer, it is likely that the stock market will come under pressure.
How does the FOMC meeting impact the stock market, and what sectors tend to be affected the most?
Following on from the last point it is important to note that the market will move off what is already priced in. So, if we expected a doveish meeting, and we get exactly that, the market isn’t really going to move. The biggest moves in the market happen when we get the least expected news. The most rate-sensitive sectors tend to be financial services, real estate, utilities, consumer discretionary, tech, and bond proxy sectors.
In particular, how can the outlook for the Tech sector change following the next meeting?
There are a few factors that will influence the broader market. They include inflation, corporate earnings, how the US deal with the debt ceiling, and of course any FOMC monetary policy decision. Based on just this meeting alone, If the FOMC were to signal an increase in interest rates, it could lead to higher borrowing costs for tech companies, potentially impacting their profitability and investment decisions. Conversely, if the FOMC indicates a more accommodative stance or lower rates, it could reduce borrowing costs and support growth and investment within the tech sector, which in turn could lead to a rise in the share prices of tech companies.
How can investors stay informed about upcoming FOMC meetings and their potential impact on the market?
Firstly, the Federal Reserve website has all the meeting dates listed, but there are also many ways investors can stay up to date with the impact of these meetings. Every Monday on eToro we run a webinar for our club members where we summarise all the most important market news. We also release a daily email and provide commentary on our social channels where we would summarise events just like this one and let investors know when the most important market events are happening in the future. eToro also has a podcast which I Co-Host called Digest & Invest where we would preview and review these kinds of events. Alternatively, financial news publications such as Bloomberg, Reuters, and the Financial Times would offer their reactions, and following the right people on Twitter can also be hugely beneficial.
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This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.
