Federal Open Market Committee

by Stephan Smith on November 24, 2010

Have you ever wondered what the Federal Open Market Committee is? I know I’ve mentioned it before and you’ve may have heard the term elsewhere, but are you knowledgeable about what it is and what its responsibilities are? If you aren’t, this is where you want to be because I will explain what the Federal Open Market Committee is and what its responsibilities entail.

What is the Federal Open Market Committee

The Federal Open Market Committee, also known as the FOMC, is responsible for setting monetary policy for the central bank called the Federal Reserve System. The FOMC is comprised of 12 members. The 12 members consist of all 7 of the Board of Governors at the Federal Reserve and 5 out of 12 Federal Reserve bank presidents. The Federal Reserve bank president of New York always sits as a member of the FOMC, but the other 4 Federal Reserve bank presidents rotate among the other 11 Federal Reserve bank presidents once a year. All Federal Reserve bank presidents attend FOMC meetings to give their input, but only 5 are allowed to vote on monetary policy actions.

Federal Open Market Committee (FOMC)

Here is a group picture of the Federal Open Market Committee. Please be aware that the those in this picture may no longer be on the FOMC.

I know I said that the FOMC is responsible for setting monetary policy, but I believe you need to know what their objectives are when they go about setting monetary policy. The Federal Open Market Committee’s objective is to assemble and craft monetary policy in such a way that would help the United States grow economically. That means monetary policy must ensure that inflation is under control (no deflation) and that it promotes maximum United States employment.

FOMC Statements & Minutes

Eight times a year, the FOMC meets to talk about the current economic situation domestically and aboard, vote on whether to make changes to the Federal Funds Rate, which is the Unites States equivalent to the overnight interest rate and vote on whether to buy or sell securities, which would determine how accessible money and credit become. During those FOMC meetings, Federal Reserve bank presidents who aren’t sitting on the committee still attend the FOMC meetings to give their input as I mentioned earlier.

Federal Open Market Committee (FOMC) Meeting

Here is the FOMC in Action

At the end of each meeting, there is an FOMC statement released to the public. The FOMC statement, which is released shortly after the FOMC meeting, contains a brief summary of the FOMC’s assessment of the current economic situation and whether there will be changes to the Federal Funds Rate and if other monetary policy actions will be taken. The FOMC minutes, which are release weeks after the FOMC meeting, contains a more detailed and comprehensive report of the FOMC’s assessment of the economic situation of the United States along with whether there will be changes to the Federal Funds Rate and if other monetary policy actions will be taken.



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