Federal Reserve news comes from the Federal Reserve Board of Governors. Sometimes simply referred to as the Fed, this central banking agency regularly releases statements, fed speeches, Federal Open Market Committee meeting minutes, and other communications. News coming from the Fed can have a significant impact on market activity. Since this agency sets and enacts policies that determine the direction of the financial system, any news or developments coming from the Fed will often have far-reaching economic effects for businesses, institutions, and consumers.
FOMC Stock Market Response And Effects
The viewpoints and decisions of the Federal Open Market Committee, also known as the FOMC, will often trigger notable reactions among investors and the stock market in general. The FOMC is responsible for the United States monetary policy. The members of this committee typically meet eight times a year to discuss potential policy adjustments based on economic activity, prices, employment, and other factors.
The minutes of these meetings are released to the public. Based on the specifics of the minutes, markets and individual investors may take various actions. One of the greatest effects the FMOC can have on the stock market is any change that might affect interest rates.
Deflation Or Negative Inflation Rates
Another term used to describe negative inflation is deflation. Deflation occurs when prices decrease and the value of currency is reduced. Deflation is sometimes called negative inflation. Negative inflation happens when the inflation rate falls below zero percent. This means that currency has decreased in value and goods and services accordingly decrease in cost.
Deflation should not be confused with disinflation, which is a slowdown in the rate of inflation but not a reverse or negation of the inflation rate. Disinflation means that the price of goods and services are not increasing at the same speed as in the past, but they have not declined.
When Will The Fed Raise Rates?
The Fed will raise rates as one method of managing inflation. When the Consumer Price Index and the Producer Price Index begin to rise more than several percentage points within a year, the Fed will typically increase the federal funds rate to curb price increases. Increasing the federal funds rate makes it more expensive for banks to lend one another money. This means that borrowing slows, consumer activity decreases in turn, and demand for goods and services falls. This slows the rate of inflation and stabilizes prices.
If The Federal Reserve Lowers The Federal Funds Rate, What Will Happen To Bank Savings Accounts?
If the Fed lowers the federal funds rate, this means that interest rates will drop. This affects personal savings accounts by reducing the amount of interest that savers accrue from the funds kept in that account. The Fed will lower the federal funds rate when the goal is to decrease the cost of borrowing, which can stimulate the economy. Lower federal funds are favorable for anyone taking out a loan but it’s a disadvantage to anyone maintaining a bank savings account. How much individual savings accounts are affected by the federal funds rate depends on the specific interest rates offered by a bank and the effects of a federal fund rate change can be slow to impact individual savings accounts.
What Happens When The Federal Open Market Committee Decides To Decrease The Money Supply?
The FOMC may expand or reduce the supply of money in the U.S. economy to control inflation through open market operations. The Fed will use open market operations, or OMO, to either buy or sell bonds to banks. If the Federal Open Market Committee decides to decrease the money supply, it will sell bonds.
This reduces the amount of cash available on the open market. This means that the flow of money slows and the cost of borrowing increases as interest rates begin to rise. Conversely, if the federal open market committee decides to increase the money supply, it will buy bonds from banks to introduce more cash into the economy, which lowers the cost of borrowing through reduced interest rates.