This post was written with the help of artificial intelligence.
Every few weeks, the entire financial world holds its breath for one event: the FOMC meeting. Whether you trade stocks, bonds, or crypto, the decisions made by this committee can trigger massive market swings. But what exactly is the FOMC, and why does everyone care about a few basis points?
What Is the FOMC?
The Federal Open Market Committee (FOMC) is the branch of the U.S. Federal Reserve that sets the country’s interest rate policy. It meets about eight times per year to decide whether to:
- Raise interest rates (to fight inflation),
- Lower them (to stimulate growth), or
- Keep them unchanged.
These decisions directly impact the cost of borrowing, market performance, and the strength of the U.S. dollar.
What Are “BPS”?
“BPS” stands for basis points, the unit used to describe changes in interest rates.
- 1% = 100 basis points (bps)
- 25 bps = 0.25%, 50 bps = 0.50%, and so on
For example: if the Fed raises its policy rate from 5.25% to 5.50%, analysts will say it increased rates by 25 bps.
Why FOMC Decisions Shake the Markets
1. Interest Rates Determine the Cost of Money
When the Fed raises rates, borrowing becomes more expensive:
- Companies borrow less → profits shrink.
- Consumers spend less → economic growth slows.
- Investors move into safe assets like bonds instead of risky ones like stocks and crypto.
👉 Higher rates = bearish for risk assets.
Conversely, when the Fed cuts rates, money becomes cheaper:
- Companies invest and expand.
- Investors search for higher returns in riskier assets.
👉 Lower rates = bullish for risk assets.
2. Markets Trade on Expectations, Not Just Decisions
Traders constantly try to anticipate what the Fed will do next. Before each meeting, they analyze:
- Inflation reports (CPI)
- Employment data (NFP)
- Speeches from Fed officials
The reaction depends less on the decision itself and more on whether the outcome surprises expectations:
- If the decision matches forecasts → markets stay calm.
- If the Fed sounds more hawkish or dovish than expected → volatility explodes.
3. Key Terms You Need to Know
| Term | Meaning | Market Impact |
|---|---|---|
| Hawkish 🦅 | The Fed focuses on fighting inflation (higher or sustained rates) | Negative for stocks & crypto |
| Dovish 🕊️ | The Fed focuses on supporting growth (rate cuts or pauses) | Positive for stocks & crypto |
| Dot Plot | A chart showing each Fed member’s projection of future rates | Closely watched indicator |
| Fed Funds Rate | The benchmark rate that dictates all others | Core of U.S. monetary policy |
4. Why Crypto Reacts Even More
Cryptocurrencies are hyper-sensitive to global liquidity.
- High interest rates → less liquidity → lower demand → crypto struggles.
- Low interest rates → liquidity floods in → Bitcoin and altcoins soar.
We’ve seen this repeatedly:
- 2020–2021: Near-zero rates fueled an epic bull run.
- 2022: Aggressive hikes triggered a crypto crash.
- 2024–2025: Markets are watching for the Fed’s “pivot” — the moment it stops tightening.
Quick Summary
| Situation | Fed Action | Typical Market Reaction |
|---|---|---|
| High inflation | Rate hikes (hawkish) | Risk assets fall |
| Weak growth | Rate cuts or pause (dovish) | Risk assets rally |
| Optimistic tone | “We may lower rates next year” | Market euphoria |
| Cautious tone | “We’ll stay vigilant” | Consolidation or mild drop |
The Takeaway
The FOMC doesn’t just move interest rates — it sets the tone for global liquidity. A single 25-bps decision can ripple through every corner of the financial system, from Wall Street to Bitcoin.
Understanding the Fed’s language — and how traders interpret it — is essential for anyone navigating modern markets. Because when the FOMC speaks, the world listens.