A couple weeks ago the Bank of Japan made a startling move when it pushed a key interest rate into negative territory. After one of its officials had said just a week prior that the central bank wasn’t considering this option, the world was needless to say a little stunned.
Now there’s a lot of speculation on whether the bank was planning it all along. And of course the speculation has filtered its way over here with everyone wondering now whether the Fed will raise rates in March, June, or not at all. Many are now wondering whether the Fed will go negative as well.
But speculation’s not really my thing. We can spend hours talking in circles about what the Fed will do and when. Everyone seems to get all worked up about what the group says to get an idea toward future policy. What is important, though, is having an idea about how the market will react.
Don’t get me wrong, I’m always hopeful the Fed will say something interesting when they release their policy statement, although it’s usually pretty mundane… even boring. But what they say and do can have a huge impact on the market, so it pays to listen.
Since last month’s Fed meeting was the first of the year, I want to give you a little background on the organization that seems to hold so much influence over the direction of the economy.
Most of it is pretty cut and dry. The Federal Open Market Committee (FOMC) meets about eight times a year to discuss policy.
The committee consists of 12 voting members, eight of which don’t change, while the remaining four rotate among the Fed’s regional banks. They meet behind closed doors, and at the end release a policy statement and usually talk it out with the press.
But every now and then, the Fed holds an unscheduled policy meeting. The last time was March 4, 2014 before their regularly scheduled meeting was held two weeks later. The unscheduled meetings themselves aren’t that big of a deal. But it gives you an idea of just how careful the group is with everything they say.
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