Federal Reserve (Fed)

The Federal Reserve (Fed) is the central bank of the United States, established in 1913. It manages monetary policy for the US dollar through the Federal Open Market Committee (FOMC), which meets eight times a year to set the federal funds rate.

Core Mandates:

• Achieving price stability (an inflation target near 2%).
• Maximizing employment.
• Supervising the stability of the US financial system.

Because the US dollar is the global reserve currency and is involved in most major forex pairs, Fed decisions are among the most influential events for global financial markets as a whole, not just for the dollar.

Key Monitoring Tools:

• The FOMC meeting statement and the Fed Chair's remarks during the press conference.
• Meeting minutes (Fed Minutes), published two weeks after each meeting.
• The "Dot Plot," which reflects committee members' projections for the future path of interest rates.

Importance for Traders: Sharp price movements occur in the US dollar, major currency pairs, stock markets, and gold upon the release of Fed decisions, particularly when they deviate from market expectations.

Common Mistakes:

• Trading immediately during the release without risk management, amid extreme volatility and widening spreads.
• Ignoring statements by Fed officials between meetings, which can shift market expectations.
• Confusing the rate decision itself with the tone of the accompanying forward guidance.