The central bank of the United States, commonly called the Fed, responsible for setting US monetary policy through the FOMC. It manages the US dollar, the world's primary reserve currency.
What Is the Federal Reserve?
The Federal Reserve System, established in 1913, is the Central Bank of the United States. It operates through the Board of Governors in Washington, D.C. and 12 regional Federal Reserve Banks. Its dual mandate is to promote maximum employment and stable prices (targeting approximately 2% Inflation). The FOMC sets the federal funds rate, which is the benchmark Interest Rate influencing all USD-denominated assets.
Impact on Forex Markets
Because the US dollar is the world's reserve currency and one side of approximately 88% of all forex transactions, the Fed is the most influential central bank for currency traders. Rate hikes strengthen USD against virtually all major currencies, while rate cuts weaken it. FOMC meetings (8 per year), the Chair's press conference, meeting minutes, and the "dot plot" projections all generate massive market moves across EUR/USD, USD/JPY, GBP/USD, and every other dollar pair.
Key Policy Tools
The Fed uses the federal funds rate as its primary tool, supplemented by Quantitative Easing or Quantitative Tightening (balance sheet management), Open Market Operations, reserve requirements, and the discount rate. Forward Guidance through dot plots and official statements shapes market expectations months before actual policy changes.
Ready to trade live?
XTB. Our pick for technical analysis. The xStation 5 platform with advanced charting, $0 minimum deposit, FCA and KNF regulated.
71% of retail CFD accounts lose money when trading with this provider.