What is the Federal Reserve’s dual mandate?
The Federal Reserve is the central bank of the United States. Congress gave it two goals for monetary policy, maximum employment and stable prices, known as the dual mandate. The Fed defines stable prices as inflation of 2% over the longer run, measured by the annual change in the PCE price index, one of the reports on the economic calendar.
The two goals can pull in opposite directions. When inflation runs hot, the Fed tends to keep rates high or raise them, which cools demand but can cost jobs. When unemployment rises and inflation is tame, it tends to cut. Much of the market’s daily reaction to data is a guess about which goal the Fed will put first.
- Federal funds rate
- The rate banks charge each other for overnight loans of reserves. The FOMC sets a target range for it, usually moving in steps of 0.25 percentage point.
- Hawkish and dovish
- Hawkish means leaning toward tighter policy to fight inflation; dovish means leaning toward easier policy to support jobs and growth.
What is the FOMC and when does it meet?
The FOMC sets US monetary policy. It has 12 voting members: the seven governors of the Federal Reserve Board, the president of the Federal Reserve Bank of New York and four of the other eleven Reserve Bank presidents, who rotate each year. It holds eight scheduled meetings a year, plus unscheduled ones when needed.
Each scheduled meeting runs two days. On the second day the statement comes out at 2:00 p.m. ET and the Chair’s press conference starts at 2:30 p.m. ET: 9:00 and 9:30 p.m. in Riyadh during US daylight time, 10:00 and 10:30 p.m. after US clocks fall back. The minutes are generally published three weeks after the decision. The SPY day trading guide shows how the index trades around 2:00 p.m.
The 2026 meetings are January 27–28, March 17–18, April 28–29, June 16–17, July 28–29, September 15–16, October 27–28 and December 8–9. The March, June, September and December meetings also publish the Fed’s economic projections, including the dot plot.
How do interest rates affect stock prices?
The federal funds rate anchors short-term rates across the economy, and expectations about its path move longer-term Treasury yields, mortgage rates and corporate borrowing costs.
Hypothetical: a company earns $5 a share and trades at 25 times earnings, $125. If higher yields lead investors to pay 20 times instead, the price falls to $100 with the same $5 of earnings. The reverse happens when rates fall. The link is loose: rates often move together with growth and inflation news, and stocks can rise while rates rise if earnings grow fast enough.
Rates reach stocks through three channels, as the drawing at the top of this page shows:
- Valuation: a stock is worth its future cash discounted back to today, and the discount rate rises with yields, so the same earnings justify a lower P/E ratio.
- Earnings: higher borrowing costs slow spending and raise companies’ interest expense.
- Competition for money: when a Treasury bill pays more, stocks have to offer more to attract buyers.
Why are growth stocks more sensitive to the Fed?
A growth company’s value rests on profits expected years from now, and distant cash loses more of its present value when the discount rate rises. The growth vs value stocks guide works through the arithmetic: $100 due in ten years loses about 17% of its present value when the discount rate goes from 4% to 6%, against about 2% for $100 due next year.
That is why the tech-heavy Nasdaq 100 and QQQ can swing harder than the broad market on Fed days. Companies with steady profits today are usually less exposed to that effect, though heavy debt brings its own rate risk.
What is the Fed dot plot, and how do markets read Fed guidance?
Four times a year, in March, June, September and December, the FOMC publishes its Summary of Economic Projections. Its best-known chart, the dot plot, shows where each participant thinks the federal funds rate should be at the end of this year, of each of the next few years and in the longer run. Each dot is one official; the median is the number headlines quote.
The dots are views, not a promise or a plan. They change as the data changes, and past dots have often differed from what the Fed later did. Markets also read the statement’s wording and the press conference: a few changed words about future policy, called forward guidance, can move stocks more than the rate decision itself.
What moves prices is the gap between the decision and expectations. A cut that was fully expected may barely register; an unexpected hold, or dots showing fewer cuts than the market had priced, can move stocks sharply. Index options often carry extra implied volatility into the meeting that drains after it, and many traders cut size beforehand, as the risk management guide suggests for any scheduled event.
What are QE and QT?
Quantitative easing (QE): when cutting short-term rates is not enough, the Fed can buy large amounts of Treasury and mortgage-backed securities. The purchases add reserves to the banking system and tend to push longer-term yields down, which supports asset prices. The Fed used QE after the 2008 financial crisis and again in 2020.
Quantitative tightening (QT) is the reverse: the Fed lets bonds mature without reinvesting all of the proceeds, so its balance sheet shrinks and reserves drain. It ran QT from 2017 to 2019 and again from 2022 until it ended the runoff on December 1, 2025. Balance-sheet decisions are announced in FOMC statements, so read them next to the rate on any Fed day.