What Is the FOMC?

By Adam Levy – Updated Sep 14, 2025 at 10:24 PM

Key Points

FOMC decisions influence interest rates, affecting borrowing costs and consumer spending.
FOMC meet 8+ times yearly to adjust monetary policy for economic stability.
Stock markets react quickly to FOMC's interest rate clues, impacting investment returns.

The Federal Open Market Committee (FOMC) is an arm of the Federal Reserve Board and is responsible for the direction of monetary policy through the open market operations of the Fed. The committee consists of 12 members who meet at least eight times per year to set a near-term target for the federal funds rate.

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All Fed bank presidents attend FOMC meetings, even if they don’t have a vote. They contribute to discussions and help assess the economic situation.

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Interest Rate

An interest rate is the cost of borrowing money or the premium you get for lending money. Learn how interest rates affect the economy.

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Cash Flow

Cash flow is how we measure the actual money flowing through a business that can sometimes be hidden behind complexities.

Second, higher interest rates mean investors will demand higher returns from stocks since they could invest in invest in bonds or certificates of deposit and earn a strong return. As such, the discount rate investors place on future earnings and cash flows from a business increase, sending the value of the stock lower. That compounds the potential for lower company earnings as a result of higher interest rates affecting consumer behavior.

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The opposite holds true, as well. When the FOMC indicates lower-than-expected interest rates going forward, market forces will usually push stock prices higher.

It’s important to remember that market expectations are key. If analysts on Wall Street already expect the FOMC to raise interest rates throughout the year, and it does exactly that, it won’t have much impact on the stock market. When reality doesn’t align with expectations -- which is often the case -- the FOMC can have a big impact on the stock market.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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