Monetary Policy

Where arithmetic helps, it is worked on the page with hypothetical numbers you can replace with your own. The trading terms define the account mechanics these pages refer to.

If you hold positions on margin, read the page on margin interest first, because it turns a rate change into a cost you can calculate for your own debit balance. The rest explain what happens on decision days and why the reaction can look out of proportion to the decision itself.

To check what you know afterward, try the economy quiz. The margin interest calculator and the merger spread calculator run two of the sums from this section with your own numbers.

Articles

• What Hawkish and Dovish Mean, and Why Markets React to Wording

  Hawkish and dovish defined, why a change in central bank wording can move stocks with no rate change, and how one decision can be read two ways.

• How a Rate Change Shows Up in Your Margin Interest

  How brokers build a margin rate from a base rate and a tiered spread, how interest accrues daily on your debit, and what a rate change does to a trade's break-even.

• Real Interest Rates, and Why Traders Watch Them

  What a real interest rate is, the quick approximation and the exact formula with worked numbers, expected versus realized inflation, and where TIPS fit in.

• How to Handle Your Positions Around a Central Bank Rate Decision

  A process for holding stocks through an FOMC decision: what to check before, how to size and set stops, which orders to avoid, and what follows.