What is FOMC? Why are Fed meetings so important?

If you are a news trader, understanding the role of FOMC is one of the most crucial fundamentals. Because every time the Fed meets, financial markets worldwide, from Forex, gold, stocks, to crypto, eagerly watch for signals from the Federal Reserve regarding the future economy. If you are not yet familiar with the overall picture of the entire Fundamental system, we recommend reading the main article first to understand the complete structure of news analysis → Fundamental for News Trading: Easy to Understand in 5 Minutes

What is FOMC?

FOMC (Federal Open Market Committee) is the monetary policy committee of the United States central bank, or the Federal Reserve. It is responsible for setting the direction of the country's monetary policy, such as:

• Whether to “raise interest rates”
• When to “cut interest rates”
• Whether to “maintain interest rates”
• Whether to implement bond buying or selling measures (QE / QT)
• Whether to use a hawkish or dovish tone

Because the U.S. is the world's largest economy, FOMC decisions directly impact the USD, the world's primary currency, and also create ripple effects across all global markets.

Who Makes Decisions at FOMC Meetings?

Many might think the Fed only has a chairman, but in reality, the FOMC consists of 12 committee members, comprising:

• 7 governors from the Fed's Board of Governors (permanent positions)
• 1 President of the Federal Reserve Bank of New York (NY Fed) (permanent position)
• 4 presidents from other Federal Reserve Banks on a rotating basis

This means 12 individuals have the power to shape the global economy each year. What each person says, or which way the votes lean, all impacts investor interpretation.

What Does the FOMC Decide?

What traders follow most closely in every meeting is:

1) Policy Interest Rate (Interest Rate)

Interest rates are the primary factor determining global currency directions. If the Fed raises interest rates, the USD typically strengthens, while gold tends to weaken due to higher holding costs.

2) Dot Plot – Future Interest Rate Projections

Every quarter, the FOMC releases the “dot plot” showing each committee member's interest rate projections. This information is closely watched by the market as it indicates how the Fed views inflation and the economy.

3) Statement and Tone

Sometimes, interest rates “don't change,” but the market swings wildly due to the Fed Chair's remarks, such as:

• “We will keep interest rates high for longer.”
• “We are prepared to raise interest rates further if necessary.”
• “The economy is slowing faster than expected.”

Just one sentence can instantly make the USD strengthen or weaken.

Why FOMC Has the Most Impact on Markets

Because the Fed is the most influential central bank in the world, its interest rate decisions impact:

• Global capital flows (inflows and outflows)
• Borrowing costs for various companies
• Financial market liquidity
• USD, EUR, GBP, JPY, and other major currencies
• Prices of gold, oil, stocks, and crypto

When the Fed speaks, the whole world listens.

FOMC's Relationship with CPI: Inflation is What the Fed Watches

Interest rate direction is determined by “inflation,” and inflation is measured by CPI, which is one of the most important variables for the FOMC. To understand the basics of inflation, read more at → What is CPI? Why Inflation Makes Markets Volatile

The Fed will look at:

• Whether CPI is above target
• What level Core CPI is at
• Whether consumer spending is still strong

If CPI remains consistently high, the Fed is highly likely to raise interest rates.

FOMC's Relationship with PMI: Leading Economic Indicator

Besides inflation, the Fed also monitors “economic activity,” especially the PMI figures, which indicate future trends in the manufacturing and services sectors. If PMI remains below 50 for several consecutive months, the Fed might view the economy as slowing down, with increased risks, which also impacts interest rate decisions. Read more at → What is PMI? The Indicator Pointing to the Economic Future

FOMC's Relationship with Non-Farm: The Labor Market is the Heart of the Economy

Whether the U.S. economy is strong, the Fed can tell from the labor market through the Non Farm Payroll (NFP) figures. If NFP is very strong, the Fed might be confident in continuing to raise interest rates without harming the economy. However, if NFP starts to decline, it could signal the Fed to slow down its tightening. More details → What is Non-Farm? Why Traders Must Watch It

Why Does FOMC Cause Significant Market Volatility?

Because everyone is looking for answers to:

• Will interest rates rise again?
• How long will interest rates remain high?
• When will interest rates start to fall?
• Is the U.S. economy “overheating” or “slowing down”?

Even if the Fed doesn't adjust interest rates sometimes, just the “statement” is enough to cause violent market movements.

Professional Trading Strategies During FOMC

1. Do not enter orders 30–60 minutes before the news, as spreads widen and prices swing wildly.
2. Monitor the Dot Plot. If announced, it is the most crucial information.
3. Wait for the charts to stabilize 15–30 minutes after the news, as the initial period is noise.
4. Reduce your position size to manage volatility.
5. Read the Statement carefully, as the tone often indicates future direction.

Conclusion: FOMC is the Heart of News Trading in Capital Markets

FOMC meetings are not just about interest rate announcements; they represent the “direction of the global economy” reflected through the Federal Reserve's statements. If you understand what the Fed is thinking, what it intends to do, and what it is concerned about, you will have a trading advantage over most traders who only focus on numbers but don't read the underlying context. Studying CPI, PMI, and Non-Farm news together will give you a clearer overall market picture and more accurate directional analysis.

Sources 

1. Federal Reserve – https://www.federalreserve.gov/monetarypolicy/fomc.htm
    Official information on the functions, structure, and operations of the FOMC
2. Investopedia – https://www.investopedia.com/terms/f/fomc.asp
    Explains the details of the FOMC and its role in the U.S. financial system
3. Bloomberg Economics – https://www.bloomberg.com/markets/economics
    Reports on the impact of Fed meetings on currencies, stocks, and global markets