Fed considers reducing policy meetings to six per year

Investing.com -- The Federal Reserve may reduce its regular policy meetings to six per year, according to a Friday report in the New York Times. Chair Warsh proposed the change, which would include six interest rate meetings and two additional meetings focused on substantive economic topics, Bank of America said in a note.

Federal law requires the central bank to meet at least four times annually. The current schedule includes eight regularly scheduled Federal Open Market Committee meetings per year.

Bank of America analysts said markets would likely accept a shift to six policy-focused meetings but warned the Fed should announce any changes well in advance to avoid disrupting front-end market operations, particularly for FOMC overnight index swaps and fed funds futures.

FOMC OIS swaps typically see the most activity around six months ahead, while fed funds futures show substantial open interest over a similar period. Both instruments trade most actively in the shortest dates, with OIS swaps concentrated in zero to three months and fed funds futures showing the largest open interest in the first, second, and third through sixth contracts.

A rapid implementation of new meeting dates could temporarily reduce front-end market functioning, according to Bank of America. Dealers may become less willing to make markets in 2027 FOMC OIS until the meeting schedule is confirmed. Fed funds futures activity could also see reduced risk-taking and liquidity due to meeting date uncertainty.

Bank of America recommended the Fed either settle quickly on a new meeting schedule or delay implementation by six months or more. The firm noted that most major global central banks maintain eight meetings per year. The Swiss National Bank and Norges Bank meet four times annually. The European Central Bank and Bank of England shifted to eight meetings per year in 2015 and 2016, with the ECB providing six months' notice and the BoE giving 13 months. The Reserve Bank of Australia moved to eight yearly meetings in January 2024 after announcing the change in July 2023.

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