How the FOMC Sets the Fed Funds Target

Eight times per year, 12 individuals gather in Washington to set the benchmark interest rate that influences everything from mortgage rates to stock valuations. The Federal Open Market Committee (FOMC) controls the federal funds target range—the most important price in global finance. Understanding how they make decisions helps you anticipate policy moves before markets fully price them in.

FOMC Composition: Who Gets a Vote

The FOMC has 12 voting members at any given time:

7 Governors: Appointed by the President and confirmed by the Senate for 14-year terms. All seven governors vote at every meeting. The Chair (currently Jerome Powell) and Vice Chair are governors who also lead the committee.

5 Regional Bank Presidents (rotating): The Federal Reserve System includes 12 regional banks. The president of the New York Fed votes at every meeting (New York executes market operations). The remaining four voting seats rotate annually among the other 11 regional bank presidents.

Non-voting participants: All 12 regional bank presidents attend FOMC meetings and contribute to discussions—they just cannot vote in that year. Their views still shape the committee's thinking.

The point is: The Chair proposes but does not dictate. Consensus-building matters, and regional presidents bring perspectives from different parts of the economy.

Meeting Cadence: 8 Scheduled Meetings Per Year

The FOMC meets approximately every six weeks, with eight scheduled meetings annually. The 2025 schedule includes meetings in January, March, May, June, July, September, November, and December.

Two-day format: Most meetings span two days—typically Tuesday and Wednesday. Day one covers economic presentations and preliminary discussion. Day two includes the policy decision and statement drafting.

Statement release: The policy decision and statement are released at 2:00 PM Eastern on the second day. This is the moment markets react.

Press conference: The Chair holds a press conference at 2:30 PM Eastern after every meeting (since 2019—previously only quarterly). This 45-60 minute Q&A session often moves markets more than the statement itself.

Between meetings: The Fed can call emergency meetings if conditions warrant (they did so in March 2020, cutting rates twice in 12 days). But surprise inter-meeting moves are rare—the Fed prefers to communicate at scheduled intervals.

Data Reviewed Before Each Decision

FOMC members prepare for meetings by reviewing extensive economic data. Three categories receive the most attention:

Employment Data:

• Monthly jobs report (nonfarm payrolls, unemployment rate)
• Job openings and quits (JOLTS data)
• Wage growth (Employment Cost Index, Average Hourly Earnings)
• Unemployment insurance claims

Inflation Data:

• Personal Consumption Expenditures (PCE) index—the Fed's preferred measure
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• Inflation expectations (surveys and market-based measures)

Financial Conditions:

• Treasury yields across the curve
• Stock market levels
• Credit spreads (investment grade and high yield)
• Bank lending standards (Senior Loan Officer Survey)
• Dollar strength
• Global developments

The durable lesson: The Fed is data-dependent, not date-dependent. Strong data means tighter policy for longer. Weak data means faster cuts.

The Decision Process: From Data to Target Range

Here is how a typical FOMC meeting unfolds:

Step 1: Staff Presentations Fed economists present the Tealbook (formerly Greenbook and Bluebook)—a comprehensive analysis of current conditions and policy options. This document runs hundreds of pages and includes forecasts under different rate scenarios.

Step 2: Economic Go-Round Each FOMC participant shares their assessment of the economy. Regional presidents report conditions in their districts. Governors offer national perspectives.

Step 3: Policy Discussion The Chair proposes a policy action. Members discuss alternatives. The goal is building consensus rather than narrow majority votes.

Step 4: Vote The 12 voting members formally vote. Dissents are recorded in the minutes. Most decisions are unanimous or near-unanimous (11-1 or 10-2). Frequent or large dissents signal genuine disagreement within the committee.

Step 5: Statement Drafting The committee approves the official statement—carefully wordsmithed to signal intentions without creating unwanted market reactions.

Target Range Format: Why 5.25-5.50%?

The FOMC sets a target range for the federal funds rate rather than a single point. The current format uses a 25 basis point range (for example, 5.25-5.50%).

What is the federal funds rate? The rate banks charge each other for overnight loans of reserve balances. Banks with excess reserves lend to banks needing reserves. This rate affects all other short-term rates in the economy.

Why a range? The Fed cannot control the exact rate—it can only set boundaries using its tools. The actual fed funds rate (called the "effective federal funds rate" or EFFR) floats within the target range, typically near the middle or lower end.

Reading rate decisions: A rate hike of "25 basis points" means the entire range shifts up by 0.25%. Moving from 4.25-4.50% to 4.50-4.75% is a 25 bps hike.

Statement Release and Market Reaction

At 2:00 PM Eastern, the FOMC releases its statement—approximately 500-800 words describing the decision and rationale. Markets parse every word.

What the statement includes:

• The policy decision (hold, hike, or cut)
• Current economic assessment
• Balance of risks
• Forward guidance about future policy
• Voting record and any dissents

What moves markets most:

• Changes to the characterization of economic activity ("solid" vs. "moderate" vs. "slowing")
• Shifts in inflation language ("elevated" vs. "moving toward target")
• Forward guidance changes ("further increases" vs. "in no hurry to adjust")
• Dissents (especially dovish dissents during a tightening cycle)

Press conference at 2:30 PM: Chair Powell takes questions for approximately 45 minutes. His answers—especially on timing of future moves—often generate the largest market swings.

The test: Read the new statement side-by-side with the previous one. Highlight every word that changed. Those changes signal where Fed thinking is evolving.

FOMC Decision Process Summary

Here is the complete flow from data to market impact:

Pre-Meeting (2-3 weeks before): Economic data releases → Staff analysis → Tealbook preparation

Day 1 of Meeting: Staff presentations → Economic conditions discussion → Initial policy views

Day 2 of Meeting: Policy options debate → Chair's proposal → Formal vote → Statement finalization

2:00 PM Release: Statement published → Markets react to rate decision and language

2:30 PM Press Conference: Chair Q&A → Markets react to forward guidance and tone

Post-Meeting (3 weeks later): Detailed minutes released → Markets parse discussion nuances

What to Watch as an Investor

Before meetings:

• Track employment and inflation data relative to Fed targets
• Note any unusual Fed speaker comments
• Monitor fed funds futures for market-implied probabilities

During announcement:

• Compare statement to previous version (word-by-word)
• Watch for dissents and their direction (hawkish or dovish)
• Listen to press conference for tone and forward guidance

After meetings:

• Read the minutes when released (three weeks later)
• Track quarterly Summary of Economic Projections (SEP) updates
• Monitor Fed speaker speeches for shifts in consensus

Your Next Step

Check the CME FedWatch Tool (free online) before the next FOMC meeting. Note the market-implied probability of a rate hike, hold, or cut. Compare that probability to your own assessment based on recent employment and inflation data. This exercise builds intuition for how markets price Fed decisions—and where surprises might occur.

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Related: Federal Reserve Dual Mandate Explained | Open Market Operations and Repo Facilities | Forward Guidance and Dot Plots