11 Reasons Why Investors Need To Understand The Fed

When the Fed speaks, investors listen…really closely. The Fed (formally known as The Federal Reserve System) is the central bank of the US.

The Fed regulates commercial banks and has the responsibility for  conducting monetary policy to achieve its dual goals of achieving full  or maximum employment and stable prices.

The Federal Open Market Committee (FOMC) is made of the seven Board of  Governors of the Fed, including Chairman Jerome Powell, plus the  Presidents of five fed district banks.

FOMC’s regular meetings are scheduled well in advance and made public.

Individual FOMC members schedule speaking engagements and are watched very closely.

They will look at the economy from different points of view, such as  demographics or regionally.

The Fed looks at all kinds of economic and inflation indicators.

The Fed  looks at important factors that could affect our economy.

The Fed needs to know about external variables that they don’t directly control but could be impactful to our economy.

Stock performance and housing prices provide Fed insight into the “wealth effect” of household net worth.

The Fed makes assessments and manages risk, including to the financial system.

When our economy is worsening and unemployment is rising, the Fed will  adopt a more “accommodative” or “stimulative” monetary policy.

The Fed’s monetary policy offsets changes in our economy.

When we are experiencing strong economic growth, it could fuel higher than normal inflation.

Higher economic growth may lead to stronger inflation as signals to the Fed to tighten money supply.

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