The Federal Open Market Committee (FOMC) is the Federal Reserve body that sets the target range for the federal funds rate, and the consumer price index (CPI) is the government's main monthly measure of inflation. Together with a handful of other releases, they move US stocks because they change what investors expect interest rates to be.
How it works
Stock prices reflect expected future earnings, discounted at a rate tied to interest rates. When inflation runs hotter than expected, markets price in higher or longer-lasting policy rates; Treasury yields rise, and long-duration stocks, whose earnings lie further in the future, are usually hit hardest. Cooler data works the other way.
- CPI: published monthly by the Bureau of Labor Statistics at 8:30 a.m. ET, usually in the second or third week of the month, for the previous month. Markets focus on the month-over-month change and on core CPI, which excludes food and energy.
- FOMC meetings: eight scheduled meetings a year. The statement with the rate decision is released at 2:00 p.m. ET on the final day, and the Chair's press conference starts at 2:30 p.m. ET. At four meetings (March, June, September and December), the Committee also publishes its economic projections, including the "dot plot" of rate expectations. Minutes follow three weeks after each decision.
- Other key releases: the monthly jobs report (usually the first Friday, 8:30 a.m. ET), the producer price index, retail sales, GDP, and the personal consumption expenditures (PCE) price index, the measure the Fed's 2% inflation goal is defined in.
How to read it
- The surprise is what moves prices. Markets price in the consensus forecast before the release. A CPI of 3% that was expected moves little; a 0.2-point miss on the monthly core figure can move the whole market.
- Watch the 2-year yield. It is the Treasury yield most sensitive to policy expectations, and it shows within seconds how the market has read a release. Fed funds futures show the probability the market assigns to each rate outcome.
- The decision is rarely the news. Most FOMC decisions are fully priced in. The reaction comes from the statement's wording, the projections and the press conference, and the first move at 2:00 p.m. often reverses during the press conference.
- Context changes the sign. In some periods strong data lifts stocks on growth hopes; in others it sinks them because it means higher rates.
- Options price the event. Implied volatility often rises into a major release and falls after it, as it does around earnings; the expected move shows how large a reaction is priced.
Worked example (illustrative numbers)
A CPI morning. The consensus for core CPI is +0.3% month over month; the release shows +0.5%.
| Time (ET) | Event | Illustrative reaction |
|---|---|---|
| 8:29 a.m. | Before the release | S&P 500 futures +0.2%, 2-year yield 4.00% |
| 8:30 a.m. | Core CPI +0.5% vs +0.3% expected | 2-year yield jumps to 4.15% |
| 8:31 a.m. | Futures react | S&P 500 futures −1.0% |
| 9:30 a.m. | Cash open | Rate-sensitive groups such as small caps and long-duration growth stocks lag |
An FOMC day in the same spirit: the rate is left unchanged as expected at 2:00 p.m., and stocks barely move. At 2:30 p.m. the Chair says further increases cannot be ruled out, and the index slips 1% before the close. The decision was priced in; the message was not.
The useful preparation is to write down, before the release, how you will respond to a hot, in-line or cool figure, as in a pre-market analysis.
Limitations and common mistakes
- Trading the first second. The initial reaction happens in thin pre-market trading with wide spreads, and it often reverses.
- Using the wrong consensus. Forecast surveys differ by provider, and revisions to earlier months can matter as much as the headline.
- Ignoring the details. A tame headline can hide hot core services prices, which the Fed watches closely.
- Assuming fixed dates. Releases can be postponed, as happens during federal government shutdowns, so check the official schedule.
- Time-zone errors. The US and Europe change clocks on different dates, so release times shift for European readers for a few weeks each spring and autumn.
In Clear Tape
The Calendar page includes an economic calendar for the next five weeks, built from official schedules (the Federal Reserve, BEA, Census, the New York Fed and the Labor Department). It lists FOMC rate decisions at 2:00 p.m. ET, FOMC minutes and the Beige Book, CPI, PPI, the jobs report, PCE, GDP, retail sales, weekly jobless claims and other releases, with FOMC, CPI, jobs, PCE, GDP and retail sales marked high impact, in your own time zone. Releases from the past week show their previous and actual values from FRED, such as CPI's monthly and annual change and monthly core change; forecasts are not shown. The Today page's market widgets include 2-, 10- and 30-year Treasury yields. The calendar and market widgets are free. The morning brief, which names the next major event, is available to Tools and Pro members; the daily pre-market analysis, with its macro and economic news sections, is for Pro members.
For educational purposes only. Not investment advice.