FOMC Meeting: What You Need to Know

The Federal Open Market Committee, also known as the FOMC, is the twelve-member committee within the United States Federal Reserve responsible for determining monetary policy. Accordingly, their decision-making process is highly anticipated by market participants and consumers alike.

On Wednesday,19 March 2025, the Fed made its second monetary policy decision for the year, keeping interest rates unchanged at 4.25%—4.5% while signaling the potential for two rate cuts in 2025. 

Following the meeting, Fed Chair Jerome Powell delivered remarks. Moreover, in light of this central bank’s decision, major Wall Street indices soared. Let’s take a closer look at what the FOMC is, why it’s important, and how it affected the markets:

TL;DR

• The Federal Open Market Committee (FOMC) decides on monetary policy and meets eight times a year to review economic conditions and set rates.

• Monetary policy refers to how the central bank controls the availability and cost of money to influence the economy, mainly through open market operations.

• The Fed buys and sells government securities to adjust interest rates and money supply, which affects loans, mortgages, and credit rates.

• In its March 2025 interest rate meeting, the Fed kept rates unchanged at 4.25%-4.5% but signalled two potential rate cuts later this year due to economic uncertainty.

• Wall Street indices rallied after the decision, with gains in the Nasdaq, S&P 500, and Dow Jones.

• Jerome Powell acknowledged trade policy risks (Trump's tariffs) and higher-than-expected inflation but emphasised caution in rate changes.

What Is Monetary Policy?

Monetary policy denotes the moves taken by a nation’s central bank, in this case, the Federal Reserve, to ‘move the needle’ with regard to the availability and cost of cash and credit. There are three main levers the Federal Reserve of the United States utilises to enact monetary policy: the discount rate, bank reserve requirements, and open market operations (OMO); the Federal Open Market Committee is responsible solely for the latter.

What Are Open Market Operations and How Are They Used?

Open Market Operations are the sale and purchase of government-backed Treasuries and securities on the market. The federal funds rate, which is set by the Fed’s Board of Governors, is the rate of interest for overnight loans that American banks charge each other; this rate also serves as a benchmark for mortgage rates, interest on credit cards, and more. 

The interest rate banks charge each other is crucial because interbank loans enable banks to keep their cash reserves high enough to satisfy consumer demand for loans. The FOMC uses Open Market Operations as its main tool to ‘push’ the market to that target federal funds rate. When Treasuries and other securities are purchased, using freshly-printed money, the money supply on the market increases, and the interest rate banks charge each other for overnight loans goes down. The money supply falls, and interest rates rise when the FOMC makes the decision that the Federal Reserve should sell Treasuries and securities that it is currently holding. 

The monetary track embarked on by the Federal Reserve is vital because Treasuries are bought and sold by the Fed in such large quantities that they directly influence the overall interest rates available to banks and everyday consumers alike. When more securities are purchased, the supply of money available in US  bank reserves rises, so loans become easier to obtain, and interest rates decrease.

How Does the FOMC Decide What Road to Take?

Depending on the overall economic climate and the FOMC members’ assessment thereof, the FOMC determines whether the Federal Reserve will either buy or sell government-backed securities. 

In times of economic strife, the FOMC tends to recommend buying securities in order to support economic growth; the inverse is true when the national economy seems to be on more stable ground. However, given that economic judgments are not always objective, there can sometimes be disagreements within the FOMC. 

Many factors go into the FOMC’s ultimate determination; members review overall economic indicators such as inflation, unemployment, and GDP. In addition, they may even consider how a change in monetary policy could affect specific industries within the American marketplace.

The FOMC Meeting minutes, which provide a detailed summary of the discussion conducted between committee members, reveal exactly which factors lead to the Fed’s monetary policy decisions, as well as the various members’ views. While a press conference is conducted shortly after the FOMC meeting ends, the minutes are not released for a full three weeks following the meeting’s conclusion, so much of what goes into the committee’s decision remains a mystery to the public for nearly a month afterwards.

FOMC members can often be referred to as ‘hawkish’, those favouring less bond-buying, ‘dovish’, who take the opposite view, or ‘centrists’, whose approach lies somewhere in between. The relative proportion of those holding each view has important repercussions for how the Federal Open Market Committee functions.

How Does the FOMC Operate?

Eight times a year, or more depending on necessity, the committee holds a meeting to decide on the course of federal monetary policy in the near term. 

At the meeting, held in Washington, D.C., committee members will review the nation’s macroeconomic conditions, assess risks, and determine the direction best suited to the FOMC’s goals of keeping prices stable along with an overall sustainable rate of economic growth. 

The twelve members then vote on whether buying or selling securities is more likely to attain these goals. 

The committee's second meeting of 2025 began Tuesday, 18 March, and concluded Wednesday, 19 March. It was followed by a press conference and a speech by Fed Chairman Jerome Powell.

Who Sits on the FOMC Committee?

Of the twelve members of the FOMC, seven are Federal Reserve Board of Governors members. The Board of Governors’ chair serves as the FOMC’s chair concurrently. The members of the Board of Governors are appointed by the U.S. President and serve for fourteen years on the board. 

The Federal Reserve Bank of New York’s president, since 2018, John C. Williams, is a perpetual member of the committee. Four of the remaining eleven regional Federal Reserve Bank presidents also serve on the FOMC in one-year rotations to ensure representation from all regions of the United States.

How Does the Fed Influence the U.S. Economy?

When the Federal Reserve moves to increase interest rates, it can have an outsize effect on the economy as a whole. If the FOMC moves to sell securities, thus increasing the federal funds rate and interest rates across the economy, various firms’ assessment of their future revenue flows can be negatively affected, as debt expenses will grow. 

If investors believe that debt servicing could have a negative effect on a company’s revenue growth, they’ll be less inclined to buy that company’s stock, the price of which will fall. The financial sector, conversely, stands to gain from an interest rate rise, since they’ll then be able to gain more from lending fees.

In addition, it may be worth noting that the Fed’s decision can have a notable impact on stocks, in general, and on tech stocks in particular. This is because tech stocks, which are usually considered growth stocks, tend to be susceptible to higher rates since they are “long-duration” assets. 

In addition, during times of inflation and high interest rates, many investors and traders shy away from tech stocks as they opt for safe-haven assets instead. (Source: Yahoo Finance)

Key Takeaways: What Did Powell Reveal in His Speech?

Given his status as the Federal Reserve’s chairman, Jerome Powell’s speeches are highly esteemed and can even shift the markets. 

Chairman Jerome Powell highlighted the growing uncertainty in the economy, largely driven by the ongoing trade policies, particularly tariffs imposed by President Donald Trump. He mentioned that these tariffs are putting upward pressure on inflation, expecting it to rise to 2.7% by the end of 2025, a bit higher than earlier forecasts. However, Powell also suggested that this inflation spike might only be temporary, referring to it as "transitory." 

Furthermore, while the economy remains on relatively solid footing, Powell acknowledges that the unpredictable nature of trade policies means the Fed must be cautious. As a result, the Fed decided to keep interest rates steady for now, with expectations that there may be interest rate cuts later this year.

Still, only time will tell what’s to come in the future. 

Why Is This Important?

The Fed's decision to maintain steady interest rates has provided much-needed relief to traders and investors who have been grappling with uncertainty surrounding the US economy due to geopolitical tensions and Trumponomics. This has temporarily calmed market sentiment, which had been negatively impacted by these factors.

How Did the Markets React?

Given the abovementioned factors, following the Fed’s decision, leading Wall Street indices rallied on Wednesday, 19 March. (Source: The Wall Street Journal)

The Nasdaq gained 1.3%, the S&P 500 over 1%, and the Dow Jones Industrial Average about 0.9%.

It will be interesting to see whether this momentum will be sustained, given the economic uncertainties and Trump’s tariffs. 

Conclusion

Amid the economic pressures and uncertainties faced by many traders, consumers, and analysts alike, the Fed’s latest monetary policy decision (to keep rates unchanged as expected) seems to have brought much-needed comfort for market participants, driving a rally across Wall Street indices.

Despite this, it is important to note that the Fed signalled two rate cuts for this year, and Powell stressed that this central bank needs to be cautious as it assesses Trump’s policies and factors like still-high inflation. 

Traders will need to monitor any upcoming news or economic reports to get a better sense of the economic landscape.

*Past performance does not reflect future results.