Federal Reserve Considers Reducing Monetary Policy Meetings to Six Per Year

The Federal Reserve is considering a reduction in its number of annual monetary policy meetings from eight to six, according to a New York Times report cited in a Friday note from Bank of America.

The proposal would establish six meetings focused on setting interest rates, supplemented by two additional meetings centered on other substantive economic topics. The Federal Open Market Committee (FOMC) currently holds eight regularly scheduled meetings per year, while federal law requires a minimum of four.

Market Impact and Analyst Warnings

Bank of America analysts noted that while markets would likely adapt to a new schedule of six policy-focused meetings, the transition requires careful management. They warned that a rapid implementation could disrupt the functioning of front-end markets, which are highly sensitive to the timing of Fed decisions.

Key concerns highlighted by the bank include:

• Potential for Disruption: Instruments like FOMC overnight index swaps (OIS) and fed funds futures could be negatively affected. These markets see the most activity in contracts tied to specific meeting dates, often up to six months in advance.
• Reduced Liquidity: Uncertainty over the 2027 meeting schedule, for example, could make dealers less willing to make markets in related swaps.
• Increased Risk Aversion: Traders in fed funds futures might reduce risk-taking and liquidity until a new schedule is confirmed.

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To avoid this, Bank of America recommended the Fed finalize a new schedule quickly or delay implementation by six months or more to give markets ample time to adjust.

Context from Global Central Banks

The potential shift would move the Fed away from the current norm among many of its global peers. Most major central banks, including the European Central Bank (ECB) and the Bank of England (BoE), hold eight policy meetings per year. The Reserve Bank of Australia also moved to eight meetings in January 2024.

In contrast, some central banks meet less frequently, such as the Swiss National Bank and Norway's Norges Bank, which each meet four times annually. When the ECB and BoE changed their schedules in 2015 and 2016, respectively, they provided significant advance notice of six and thirteen months, setting a precedent for a well-communicated transition.