The FOMC and Interest Rates — How U.S. Rate Decisions Move Stocks, Crypto and Currencies
Key takeaways
- The FOMC is the Federal Reserve meeting that sets the U.S. benchmark interest rate; it meets eight times a year on a regular schedule.
- Markets react more to 'whether the decision matched expectations' and 'the direction ahead (statement wording, dot plot, the Chair's remarks)' than to the rate decision itself.
- Higher rates reduce the present value of future profits, weighing on growth stocks; a stronger dollar can also trim U.S. multinationals' overseas earnings and weigh on emerging markets.
1. What is the FOMC?
The FOMC (Federal Open Market Committee) is the meeting at the Federal Reserve (the Fed), the U.S. central bank, that sets the benchmark interest rate. It holds eight regular meetings a year, usually over two days. In urgent situations it can also hold unscheduled meetings.
The Fed has two goals: price stability (inflation of roughly 2% a year) and maximum employment. The basic approach is to raise rates when inflation runs too hot and to cut rates when the economy cools.
2. What comes out on decision day
| Time (U.S. Eastern) | What is released | What to look for |
|---|---|---|
| 2 p.m. on the second day of the meeting | The statement and the rate decision | The change in rates, and how the wording on the economy differs from last time |
| Same day, 2 p.m. (March, June, September, December) | Summary of Economic Projections (SEP) and the dot plot | The future rate path that members expect |
| 2:30 p.m. | Chair’s press conference | Hints about the next meeting, and views on inflation and employment |
| About three weeks later | Minutes | What views were exchanged at the meeting |
Stocks often swing in both directions between the 2 p.m. statement and the end of the press conference, so the first move isn’t always the final one.
The dot plot is a chart in which each member marks, with a dot, the interest rate he or she considers appropriate. It is not a promise but a “current view,” so it can change at the next meeting.
3. Markets compare against expectations
Most rate decisions are priced into markets in advance. CME FedWatch calculates the probabilities the market expects from interest rate futures prices, and the media often cite these numbers.
- If the Fed holds, hikes or cuts as expected, markets try to read the next direction from the statement wording and the press conference rather than from the decision itself.
- A decision that differs from expectations can cause large moves in stocks, bonds and the dollar.
- Fed officials enter a “blackout period,” during which they refrain from public remarks, starting about ten days before a meeting.
4. How interest rates move asset prices
| Channel | Explanation |
|---|---|
| Discount rate | When rates rise, the present value of money to be earned in the future falls. Growth and tech stocks, whose profits are concentrated in the distant future, are more sensitive. |
| Cost of funding | The cost of borrowing for companies and households rises, which can reduce investment and spending. This weighs on companies that borrow to make large investments. |
| Alternative returns | When Treasury yields are high, buying bonds instead of risky stocks or crypto still earns a certain return, so money can shift. |
| Dollar | When U.S. rates rise relative to other countries, the dollar tends to strengthen. A stronger dollar makes U.S. exports pricier and reduces the dollar value of overseas sales, and it often weighs on emerging-market assets and commodities. |
These relationships do not always move in the same direction, however. A rate hike can be read as a sign that “the economy is strong,” and stocks can rise.
5. Indicators worth watching alongside
- Inflation: The Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index, which the Fed places more weight on
- Employment: Nonfarm payrolls, the unemployment rate, weekly jobless claims
- Treasury yields: The 2-year (sensitive to policy rate expectations) and the 10-year (growth and inflation expectations)
- On this site’s Calendar you can see FOMC dates together with the probabilities the market expects and the results. Rate and dollar trends are shown at a glance on Market Pulse.
6. Other central banks to watch
The European Central Bank, the Bank of Japan and the Bank of England also set rates on their own schedules. When the Fed moves differently from them, the dollar tends to move the most, which in turn affects U.S. multinationals’ overseas earnings and commodity prices.
This article explains the relationship between interest rates and markets. It is not investment advice.
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