In recent months, the actions of the U.S. Federal Reserve have played an increasingly important role in the gyrations of the U.S. economy and stock market.

The Federal Reserve is the central banking system of the United States.

Composed of 12 regional banks, the Fed governs and conducts monetary policy, supervises and regulates financial institutions, and acts as a "lender of last resort"

FOMC, the Fed's policymaking body, influences the economy and stock market through its "dual mandate"

Intercontinental Wealth Advisors' Juan Pablo Villamarin says the Fed has two main monetary policy tools. 

"The most generally known tool is the fed funds rate (FFR), which banks borrow and lend overnight.

"All else being equal, a greater cost of capital diminishes companies' investment and margin spending," he argues.

Investors and markets look ahead. Investor expectations "price in" future occurrences to the existing value of various assets.