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The Federal Open Market Committee (FOMC) consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.
One of the most important decisions that the FOMC makes is to decide the overnight lending benchmark rate through the federal securities operations. This rate is the rate that is charged between financial institutions to held money overnight.
It is the most important tool in the monetary policy to handle the economic life cycles and the supply and demand of money in the markets.
Why is it useful?
Financial markets are very reluctant for any increase in the interest rate as it will address controlling hand on the growth in the economy as well as it will make it less attractive for investors to buy securities with their high yielding dollars.
So the increase will have a negative impact on the stocks markets and the bonds market as well, while on the other hand it makes the currency more attractive to buy against the other currencies and financial instruments as the yield is higher on the currency supported by strong economic growth.
Plus it is a good indicator on the health and growth of the economy which should be reflected on the currency. To be conclusive the effect is positive with dollar and negative for the stock indices and the level of effect is very high and is one of the most renowned market movers.
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