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 FOMC Meeting Begins

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gastaoss



Number of posts : 440
Registration date : 2007-07-01

PostSubject: FOMC Meeting Begins   Tue Oct 30, 2007 1:34 pm

FOMC Meeting Begins







Definition

The Federal Open Market Committee consists of the seven Governors of
the Federal Reserve Board and five Federal Reserve Bank presidents. The
FOMC meets eight times a year in order to determine the near-term
direction of monetary policy. Changes in monetary policy are now
announced immediately after FOMC meetings. Why Investors Care





Why Investors Care?

The Fed determines interest rate policy at FOMC meetings. These
meetings 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
-- or a change in the wording of the post-FOMC announcement that
suggests a shift in policy -- 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 10 percent, they will attract
more money away from stocks than when they only yield 5 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, few 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 financial markets, while
lower interest rates are bullish.
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