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All eyes will again be on the Fed today following the FOMC meeting, and with good reason: the decisions the board makes could have an effect on the entire global economy. That is, if any major changes are announced (which is unlikely). In what may be one of outgoing Federal Reserve Chairman Ben Bernanke’s final meetings as head of the Fed, most likely the Fed will choose to stay the course it has been following, with interest rates low and a robust bond buying program. Even so, investors and economists alike will be holding their breath until the press conference after the meeting.
5 What is the FOMC?
FOMC is the acronym for Federal Open Market Committee, which is a twelve member group consisting of the seven board members of the Federal Reserve System, as well as the president of the Federal Reserve Bank of New York along with four other Reserve Bank heads (there are twelve Federal Reserve Banks in all). This body meets eight times a year and the decisions made during these sessions directly influence national monetary policy by setting the “open market operations” of the Fed. Open market operations refers to the purchase and/or sale of securities and commodities from the open market; essentially the Fed acts as any other investor, albeit with deeper pockets and an eye toward economic stability rather than personal gain.
4 This Will Likely Be Ben Bernanke’s Penultimate Meeting as Chair of the Fed
While little is expected in policy change after Chairman Bernanke steps down and is (likely) succeeded by Janet Yellen, Bernanke’s steady hand has had a calming effect on policy and the economy: his departure early next year may cause uncertainty and even economic turmoil. That makes today’s FOMC meeting and the session scheduled for December 18th all the more resonant, as they offer some of the last opportunities for the longtime chairman to leave his mark on the Fed.
3 The Fed Will Likely Continue the QE Program Into Next Year
Fed watchers are now predicting that the board will choose to continue its program of quantitative easing at least into the opening months of 2014. Currently, the Fed buys up $85 billion of bonds from its member banks each month. This infusion of cash in turn allows those banks to lend and invest more handsomely, thus bolstering the banks, businesses and creditors of the member institutions. The ripple effect continues out from there, ideally: while it is impossible to quantify exactly how much good QE does for economics as a whole, the program’s cessation would undoubtedly do significant damage to our still shaky economy.
2 The Tone of the FOMC Statement Will Speak as Loud as the Language
After today’s meeting of the FOMC, there will be no press conference or interviews. In fact, the group will release just a single statement, and even if that statement announces no immediate changes to monetary policy, the tone will likely forecast changes ahead, or the lack thereof. A particularly “hawkish” tone bespeaking confidence in a robust and growing economy could indicate an eventual tapering of the Fed’s bond buying program and low interest rates. A more “dovish” tone would hint at maintaining the status quo until the economy has further improved.
1 The Last Jobs Report Was a Disappointment
The September jobs report—more formally known as the Labor Department’s Employment Situation Summary—was a letdown, and when the landscape of American employment looks grim, the Fed rarely takes action that could make things worse. So expect little change to monetary policy after today’s FOMC meeting following the reported slowdown in hiring. After bad news about employment, in this case, no news from the Fed s is good news for us all.