Much has happened since the last time the Federal Open Market Committee, or FOMC, met in mid-December. The stock market plunged to its 2018 lows but has since recovered quite nicely. The federal government was shut down for a record 35 days for much of that time as well. The shutdown affected the Fed's ability to assess economic data, much of which is produced by departments that only recently reopened. Also setting the scene are Fed Chair Jerome Powell's comments from early January when he used the word "patient" to describe the committee's attitude toward future rate hikes.

While no one can predict exactly how the January Federal Reserve meeting will turn out, here's a general idea of what investors can expect.

Businessman waving hands around a crystal ball.

Image source: Getty Images.

What not to expect

It's important to point out that an increase in the federal funds rate is not a likely outcome of this Fed meeting. In fact, options markets are literally pricing in a 100% chance that the policy-making FOMC will leave rates alone. Realistically, there is some non-zero chance that the Fed could decide to raise rates, but to say that it would be a big surprise would be an understatement.

It's not that kind of Fed meeting

For a little more color, here's what investors should know about the FOMC meeting calendar.

The FOMC meets eight times per year. However, only four of those meetings involve the committee releasing its economic projections. These occur in March, June, September, and December. Although the FOMC has the ability to raise or lower interest rates at any of its eight meetings, it generally only does so at those four.

Here's what to watch

What you can expect is that the FOMC will release a statement at 2 p.m. EST on Wednesday, as it does after every meeting. The statement itself isn't terribly long -- just over a page of text -- but don't let its brevity make you think it isn't important.

There are few financial press releases, if any, that are as closely examined as this document.

The biggest news likely to come is slight changes to the language in the Fed's statement. As an example of what types of changes could happen, here are a couple of the changes in wording that were made between the November and December 2018 FOMC statements:

  • "The unemployment rate has remained low" (December) vs. "The unemployment rate has declined" (November)
  • Added in December "...but will continue to monitor global economic and financial developments and assess their implications for the economic outlook."

These, along with a few other small changes, indicated that the FOMC was shifting from a planned path of regular rate hikes to a more moderate approach driven by evolving data assessments.

What the January Fed meeting could mean for the stock market

Most economists are expecting few major changes in this month's FOMC statement. It is generally expected that the committee will reaffirm its data-driven approach to rate hikes and that it will continue taking a generally cautious approach when it comes to further increases.

Any surprises in the FOMC's language in its statement could certainly move the stock market. If the statement indicates a higher probability of upcoming rate hikes than is currently expected, it could cause downward pressure. Conversely, if the FOMC gives any indication that it sees rates remaining steady for a while, it could cause markets to rally.

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