📈 The Eight FOMC Meeting
Market Meditations | December 15, 2022
Yesterday marked the eighth and final meeting of the year for the Federal Open Market Committee (FOMC). The FOMC meets eight times a year to discuss monetary policy changes, review economic and financial conditions and assess price stability and employment output. These meetings take place every six weeks and their outcome often has an impact on global financial markets.
- The Federal Reserve are adamant to control inflation and bring it back to the ‘stable’ level of 2%. Their meeting focused on monetary policy decisions to achieve its objective as per an official press release published on December 14th.
- The Board voted unanimously to raise the interest rate paid on reserve balances to 4.4%, effective December 15th. Increasing the interest rate paid on the reserve balance reduces the amount of money the banks have available to lend. Since the supply of money is lower, banks can charge more to lend which increases interest rates. The FED does this to discourage spending and encourage savings in an attempt to control the rate of inflation.
- The Board of Governors also voted to approve a 0.5% increase in the primary credit rate to 4.5%, effective December 15th. When the FED increases the primary credit rate, it becomes more expensive for banks to borrow money from the FED. This often decreases the money supply leading to slower economic growth but with the aim to decrease inflation. However, the exact effect depends on a variety of factors, mainly the current state of the overall economy.
Ultimately, the conclusion of the FOMC meeting had very little effect on financial markets. In summary little has changed from prior meetings and the FED has reassured markets that there will be higher rates for longer and the committee will not consider rate cuts until they are confident that inflation is moving towards the targeted 2% rate.