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, 17 September 2025, the Federal Reserve announced its sixth monetary policy decision of the year, cutting rates by 0.25 percentage point, setting the new federal funds target range at 4.00% to 4.25%. This marked the Fed’s first rate cut in 2025, and unsurprisingly, the markets shifted in response. Following the decision Fed Chair Jerome Powell delivered his remarks.

Let’s take a closer look at what the Federal Open Market Committee (FOMC) is, why its decisions are significant, and how this one 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.

• Rate Cut: Fed reduces federal funds rate by 25 basis points to 4.00%-4.25%

• Labour Market: Powell cited "cooling" job market as primary justification

• Market Reaction: Mixed response with Dow rising, S&P 500 and Nasdaq declining

• Future Outlook: Data-dependent approach with potential for further cuts

• Inflation: Remains above 2% target but showing signs of moderation

• Dollar Impact: USD strengthened following the announcement

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 sixth meeting of 2025 began on Tuesday, 16 September, and concluded on Wednesday, 17 September. 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 it’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. 

Shift in Risk Balance

Powell stated that the risks between inflation and employment have moved closer to balance, justifying the 25 basis point interest rate cut.

Labour Market Weakening

He highlighted that the labour market is "really cooling off", pointing to:

• Slower job creation

• A rising unemployment rate

• Decreased labour force participation, particularly among vulnerable groups

Purpose of the Rate Cut

The move was described as a “risk management cut”, aimed at:

• Preventing further weakening in the labour market

• Acknowledging that inflation remains somewhat elevated

No Support for Larger Cut

Powell clarified there was not widespread support for a more aggressive 50 basis point reduction.

Data-Driven Approach

The Fed will continue to:

• Closely monitor economic data

• Assess the evolving economic outlook

• Weigh the balance of risks before taking further action

Commitment to Mandates

He reaffirmed the Fed’s dual commitment to:

• Supporting maximum employment

• Returning inflation to the 2% target

Readiness to Respond

The central bank remains prepared to act should new risks to the economy emerge.

Why Is This Important?

The Fed’s rate cut reduces borrowing costs, making mortgages, car loans, and business financing more affordable. This encourages consumer spending and business investment, supporting economic growth during periods of slowdown and labour market weakness. 

Moreover, lower interest rates may help households refinance debt and boost disposable income, while businesses benefit from cheaper capital, potentially leading to more hiring or expansion. 

However, the move also signals cooling economic growth and a softening labour market, adding to uncertainty. With inflation still above target, the Fed is trying to support the economy without letting price pressures worsen. 

Overall, the cut is intended to cushion the economy against a potential downturn by easing credit conditions and maintaining demand. Still, only time will tell how the decision will actually affect the broaders economy in the long run.

How Did the Markets React to the Fed’s Rate Cuts?

Overall Market Response:

• Markets responded with mixed results following the Fed's 25 basis point rate cut.

• Dow Jones closed slightly higher after recovering from an early decline.

• S&P 500 and Nasdaq ended marginally lower, despite initial gains.

• Treasury yields fell initially but rose again during Jerome Powell’s press conference.

Global and Commodity Markets:

• Global stocks hit record highs earlier in the day, driven by optimism over potential further Fed easing.

• Gains were later trimmed due to profit-taking and cautious sentiment on Wall Street.

• The US dollar strengthened modestly against major currencies.

• Gold prices fell from recent highs, reflecting shifts in inflation and rate expectations.

Investor Sentiment and Interpretation:

• Market action reflected a classic “sell the news” pattern, following strong anticipation of the rate cut.

• Investors balanced optimism over looser monetary policy with:

• Concerns about slowing economic growth

• Signs of a cooling labour market

Conclusion

The Federal Reserve's decision to cut interest rates for the first time in 2025 reflects a shift in focus toward supporting a softening labour market amid slowing economic growth. While inflation remains slightly elevated, Fed Chair Jerome Powell signalled that risks are now more balanced, justifying the move. Markets reacted with mixed sentiment, welcoming the easing but remaining cautious about the broader economic outlook. Ultimately, the FOMC’s action underscores its commitment to sustaining employment and stabilising inflation, though the full impact of this policy shift will unfold in the months ahead.

*Past performance does not reflect future resutls. The above are only projections and should not be taken as investment advice.