What to Watch in the Fed's Meeting on Wednesday, Sept. 16

The Federal Reserve is scheduled to meet on Sept. 15–16 for its last policy meeting before the U.S. presidential election in November. After increased volatility in the stock markets last week, investors are looking forward to the Fed's meeting for more clues on the outlook.

The Federal Reserve is the U.S. central bank. The Fed aims to provide the country with a safe and stable financial and monetary system. The central bank is made up of 12 regional Federal Reserve banks, which are responsible for specific geographies in the U.S. Overall, the Fed has five main functions:

• conducting the nation’s monetary policy
• promoting the stability of the financial system
• promoting the safety and soundness of individual financial institutions
• postering the safety and efficiency of payment and settlement system
• promoting consumer protection and community development

The Federal Reserve has a dual mandate of maximizing employment and stabilizing prices. The central bank does so through various measures including setting interest rates, known as the federal funds rate. The federal funds rate is the target rate at which commercial banks borrow and lend their excess reserves to each other. The Fed’s main monetary policymaking unit is called the Federal Open Market Committee (FOMC). By law, the FOMC should meet at least four times each year. Usually, the committee meets eight times a year to decide on the future policy by reviewing the intervening data points.

The Fed's two-day meeting in September will conclude on Sept. 16. Fed Chair Jerome Powell will hold the press conference on Sept. 16 after the monetary policy meeting concludes. The press conference will take place at 2:00 p.m. ET on Sept. 16. 

The FOMC usually holds eight regularly scheduled meetings and other meetings when necessary. In 2020, the committee has already met seven times. Two emergency meetings were held in March in response to the COVID-19 pandemic. After the September meeting, the Fed will have two more meetings in 2020 — one on Nov. 4–5 and one on Dec. 15–16. 

The Fed's upcoming meeting is important for several reasons. Since it's the last Fed meeting before the U.S. presidential election, it has added significance. During the annual economic policy symposium at the end of August, the Fed announced that it will adopt flexible average inflation for its monetary framework. Previously, the Fed looked at taking measures to not let inflation overshoot its target of 2.0 percent. 

The new framework could allow inflation to rise moderately above this target if necessary to balance periods of weak performance. At the upcoming meeting, the Fed could discuss how it plans to achieve higher average inflation. The Fed could also provide details on how it would implement the new framework. 

The Fed also releases a “dot plot” or a summary of its updated economic projections. The graph helps gauge the forward path for interest rates. While the central bank has already indicated that interest rates could remain near zero by the end of 2022, the updated projections could include the outlook through 2023.

The Fed looks at unemployment figures to decide its next steps. While the unemployment rate fell in August, the Fed probably won't give much weightage to a single data point. The broader outlook still remains very soft amid the ongoing COVID-19 pandemic.

The press conference after the conclusion of the Fed's meeting will be broadcast live on its website. The policy statements and minutes for the meetings are updated on the Federal Reserve website after the meeting. The minutes are released three weeks after the date of the policy decision.