What does the FOMC do?

The Federal Open Market Committee (FOMC) sets monetary policy in the United States.

To do that, it can raise or lower the interest rates set by the US central bank, the Federal Reserve.

Investors are wary of FOMC decisions because they influence both the US economy and the wider world.

In French, FOMC translates as "Comité fédéral de marché ouvert".

When interest rates fall

When the FOMC cuts interest rates, borrowing money becomes cheaper.

Imagine you want to buy a house.

With low interest rates, your mortgage costs less, making you more likely to take out the loan.

It’s the same for businesses. Cheaper borrowing makes it easier to fund growth and investment.

They can launch new projects, hire more staff or even acquire other companies.

That stimulates the economy and boosts investor confidence. We often see bull runs during these periods.

Conversely, when the FOMC raises interest rates, borrowing becomes more expensive.

Let’s go back to the house example.

With high rates, your mortgage costs more, and you’ll think twice before committing for 25 years.

Businesses face the same problem.

When money costs more, they’re less inclined to borrow to invest or expand.

They may postpone expansion plans, cut spending or even lay off staff to reduce costs.

We often see bear markets during these periods.

The FOMC raises rates when the economy is doing too well.

Yes, you read that right.

When the economy grows too fast, or "overheats", prices tend to rise quickly.

That’s inflation.

For example:

The baguettes are exactly the same. We’re just paying more and more for them...

That price increase reduces purchasing power if wages don’t keep up, which is often the case.

By raising rates, the FOMC tries to slow price growth. Remember: higher rates mean people and businesses borrow less.

Less borrowing means fewer projects, less expansion, slower activity, and so on.

If you’ve followed me for a while, you’ll know I don’t recommend trading just before an FOMC announcement.

Let me explain what happens:

Markets go wild: just before and after the announcement, prices swing in every direction. Even a well-placed stop-loss can get hit in seconds.
Expect surprises: even if everyone expects a rate cut, a slightly different announcement can change everything. Forget the idea of landing the trade of the century by predicting their decision.

So what do you do?

Avoid taking trades during these announcements.

To learn more about economics, I recommend watching Ray Dalio’s video, "How the Economic Machine Works in 30 Minutes".