How does the Federal Reserve meeting affect traders?

The Federal Open Market Committee meeting is often considered one of the most important dates on traders' calendars for one main reason: interest rates.

The Federal Open Market Committee can raise or lower the federal funds rate in the United States through the trio of policy tools ( open market operations, the discount rate, and reserve requirements ).

This central change in rates will lead to other interest rates, including foreign exchange rates and bond prices, which can have a significant impact on traders.

What markets are affected by the Federal Open Market Committee?
When the Federal Open Market Committee decides to raise or lower interest rates, the effects will be reflected in global financial markets. Here are some specific markets to watch:

Forex: Any change in interest rates will play a role in the US dollar, the most traded currency in the world to date.
Indicators: Higher interest rates tend to be bad for stocks, while lower rates can be a blessing.
Bonds: Changes in interest rates are often significantly reflected directly on U.S. bonds.
Therefore, traders and investors around the world will try to predict the direction of monetary policy after each Federal Reserve meeting and adjust their strategies and investment portfolios accordingly.