The Fed and the data that moves markets
By SuperdayReps · Michigan Ross Undergrad | Wharton MBA · ex-Citi | ex-Greenhill · Former Head Mentor at a Leading IB Prep Service
17 min read · updated November 3, 2026
Almost everyone on a trading floor starts the day asking what the Federal Reserve will do next. The Fed sets short-term rates almost directly, and longer rates, the dollar, stock valuations and credit spreads all lean on where the market thinks it is heading. When the jobs report lands at 8:30, the Treasury desk reprices within seconds.
So an S&T interviewer will ask about the Fed and the data almost every time. They are not checking whether you can forecast. They want to see that you understand the machine: what the Fed is aiming at, which levers it pulls, which numbers tell it how it is doing, and how the market prices all of that before the Fed acts. For today's actual numbers (the Fed's range, the latest inflation print, the 10-year yield), use the Markets Hub the morning of your interview.
The Fed sets one overnight rate. Everything else is set by markets guessing where that rate goes, so a data release moves prices only to the extent it changes that guess. And prices already hold the consensus forecast, so the news is the gap between the print and what was expected, not the print itself.
What the Fed is trying to do
The Federal Reserve is the US central bank. Congress gave it two goals that do the work, together called the dual mandate:
- Maximum employment. As many people working as the economy can sustain without pushing inflation up. There is no fixed number. The Fed reads it from unemployment, job gains, wages and how many people are in the labor force.
- Stable prices. Defined as 2 percent inflation a year, measured on the PCE price index.
The law also names moderate long-term interest rates, usually treated as a result of the first two. Beyond the mandate, a central bank is the lender of last resort (it lends to sound banks against good collateral when private funding dries up, so one bank's run does not sink the system) and it watches financial stability.
Policy is set by the Federal Open Market Committee (FOMC), which has twelve voters: the seven governors of the Board in Washington, the president of the New York Fed (always a voter, because that bank runs the Fed's market operations) and four of the other eleven regional presidents on a yearly rotation. All twelve presidents argue at the table, but only five vote in a given year. The committee holds eight scheduled meetings a year, roughly every six weeks, and can meet between them in an emergency. It is led by the Chair, but a committee sets rates, not one person.
Saying the Fed targets CPI, or that the Chair sets rates. The target is 2 percent on PCE inflation, and policy is a vote of the FOMC. Both slips are small, and both tell an interviewer you have not read past the headlines.
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Frequently asked
- What is the Fed's dual mandate?
- Congress told the Federal Reserve to aim for maximum employment and stable prices. The Fed defines stable prices as 2 percent inflation a year, measured on the PCE price index. Maximum employment has no fixed number; the Fed judges it from unemployment, payrolls and wages.
- How does the Fed actually raise interest rates?
- The FOMC votes to lift the target range for the federal funds rate, and the Fed raises the rates it controls the same day: the interest it pays banks on their reserves and the rate on its overnight reverse repo facility. No bank lends for less than it can earn risk free at the Fed, so overnight market rates move up with them within a day.
- Which economic data release moves markets the most?
- The monthly jobs report and the inflation reports (CPI and PCE), because they speak directly to the Fed's two goals. What moves prices is the surprise against the consensus forecast, not the number itself. When inflation is the Fed's main worry, CPI can matter more than payrolls.
- What is a breakeven inflation rate?
- It is the yield on a regular Treasury minus the yield on an inflation-protected Treasury (TIPS) of the same maturity. If the 10-year Treasury yields 4.3 percent and the 10-year TIPS 1.9 percent, the breakeven is 2.4 percent, the average inflation rate at which the two bonds pay the same. It is a market read on expected inflation, with some noise from risk and liquidity premiums.
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