U.S. stocks have posted gains in six of the last seven trading sessions, but they opened lower today, with the and the narrower, price-weighted down 0.39% and 0.5%, respectively, at 10:05 a.m. EDT.
All eyes on the Fed! The Federal Open Market Committee's regular two-day meeting begins today. The FOMC is responsible for setting U.S. monetary policy, including interest rates. Here are three things investors should keep in mind. If you only have time to read one, skip straight to No. 3:
We know this is true because the Fed's stance on rates is well telegraphed. As the statement from the previous FOMC meeting indicated:
"In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."
All of the conditions for maintaining a zero-interest-rate policy are easily met.
The minutes of the last FOMC meeting showed the Fed was prepared to begin tapering its $85 billion per-month bond-buying program as early as this summer. With recent economic data coming in weaker than expected, it would not be surprising if the committee were to turn more dovish in this regard.
If you're a stock trader with a short time horizon, you are driven by prices, therefore tracking the run-up to and outcome of a Fed meeting is critical. Long-term investors, on the other hand, can afford to take a much more nonchalant approach to these events, as they know their investing returns, measured over an equity-appropriate time horizon (i.e., 10 to 20 years), are a function of business fundamentals, rather than Fed policy.
As Berkshire Hathaway CEO Warren Buffett once declared: "I don't make guesses [regarding the economy], and when I do, I don't pay attention to myself. Charlie [Munger] and I never talk about macroeconomics." That doesn't appear to have harmed his results, and I suspect he would say the very same thing about monetary policy.
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The article 3 Things Investors Need to Know Going Into Today's Fed Meeting originally appeared on Fool.com.
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