The Fed (Federal Reserve) / FOMC
The US central bank — it sets the policy rate and manages the money supply to steer prices and employment, and its decisions move markets worldwide.
In plain terms
The Fed is the central bank of the United States. It plays a role like any country's central bank, but because the US dollar is the world's reserve currency, the Fed's decisions affect markets and rates not just in the US but worldwide.
The Fed decides whether to raise or cut the policy rate at a meeting called the FOMC, held 8 times a year. So investors hang on this meeting and every word from the chair (currently Powell).
What it tells you
The Fed weighs two goals — price stability (keeping inflation not too high) and maximum employment (jobs). When prices run hot it raises rates to cool them; when the economy cools it cuts rates to revive it.
So knowing "what the Fed is watching" lets you gauge the direction of rates in advance, and the direction of rates the whole market mood. The Fed's decisions are a force that moves stocks broadly, regardless of individual company results.
Formula
the Fed's rate decision = it sets the policy rate at the FOMC (Federal Open Market Committee) meeting, held 8 times a year
What high or low means
When the Fed raises rates and withdraws money (tightening), it is usually read as a headwind for risk assets; cutting and easing, as a tailwind. But the market reacts more to "whether it differed from expectations" than the decision itself.
As much as the decision, the direction the Fed signals ahead (forward guidance) matters. A mere shift in the nuance of its words can shake the market.
The market tries to price the Fed's decision "in advance." So even a rate hike, if already expected, can see prices rise, while the same decision can shake markets badly if it strays from expectations. "Versus expectations" is the key, more than "the decision itself."
The Fed's words are always careful and vague (to reduce market shock). There is always a risk of over- or under-reading the nuance.
The Fed's moves are macro, hard to predict, and not something to chase in trading. This term is background for understanding market news. (※ Our screen handles individual companies' SEC-filed financials.)
In 1979, with the 1970s high inflation refusing to subside, Paul Volcker became Fed chair and, saying "taming inflation requires accepting pain," pushed the policy rate at one point toward 20%.
The shock brought recession and high unemployment and drew fierce criticism, but in the end inflation that had topped 10% was tamed. As a case showing that "when the Fed resolves to tame prices, it will accept even a recession," "Volcker's lesson" is still recalled in every inflationary phase.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see The and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.