Learn to trade the FOMC
The Federal Open Market Committee (FOMC) is an important part of the Federal Reserve Board that decides the direction of monetary policy. The committee meets at different times of the year to decide on the maintenance and changes of the current monetary policy. When a decision is made to implement a change in current policies, it leads to the purchase or sale of US government securities in the open market to bring about the development of the economy.
The structure of the FOMC
I. Its board of governors consists of seven members, and seven members are appointed by the president of America with the consent of the Senate.
II. The chairman of the board is the president of the Federal Reserve Bank of New York.
III. Of the 11, four Federal Reserve Bank presidents serve as chairs of the FOMC on a rotating basis. The remaining three presidents can attend FOMC meetings, but are not authorized to vote on important monetary policy issues.
FOMC - How does it work?
The FOMC holds eight meetings a year, and the meetings are held in secret. The administrator of the board is assigned by the US president. Since the Federal Reserve System is the central bank of the United States, the main responsibility of this body is to ensure effective support for the objectives of achieving maximum employment, price stability, and a moderate long-term interest rate. Like other central banks in the world, the Fed does not have established inflation targets. Its success has always inspired the implementation of non-quantifiable inflation targets.
How does the FOMC decide on interest rates?
The decision to raise, lower or leave interest rates unchanged has a direct impact on the US dollar. Raising Interest Rates When the Board of Governors decides to raise interest rates, it sells US government securities to major financial dealers, who again pay the money by transferring it to the FOMC account. This creates a shortage of US dollars in the banking system and increases the value of the currency.
A reduction in interest rates
When the FOMC cuts interest rates, it buys US government securities from big financial dealers. The Forex FOMC would then transfer the money to the dealers' accounts. This would increase the supply of US dollars in the banking system and thus lower the value of the currency.
Interest rates completely change the world of Forex
The world of Forex trading is completely dependent on interest rates. The interest rate of a currency is the most important factor in knowing the perceived value of a currency.
Trading is done with the perceived value of the currency. Forex traders are always concerned about interest rate fluctuations. Changes bring about value strength or expansion.
Investors are waiting for the FOMC statement as it has a significant impact on rate hike expectations. If the FOMC statement has an optimistic assessment of the economy, it would simply add to the value of the dollar. In a sense, the FOMC completely controls the Forex trading world.
The platinum trading institute is one of the best forex trading institutes. The online trading academy offers Forex trading online and classroom workshops and a Forex trading system to easily manage your daily trading strategy.
You must be logged in to post a comment.