The Federal Open Market Committee (FOMC), a committee of the Federal Reserve System (the Fed), is responsible for regulating the country’s open market operations, such as the Fed’s purchasing and selling of US Treasury securities. Important decisions about interest rates and the expansion of the US money supply are made by this Federal Reserve Committee.
Introduction To Federal Open Market Committee
The main decision-making body for monetary policy at the Fed is the Federal Open Market Committee or FOMC.
The president of the Federal Reserve Bank of New York, along with four other Reserve Bank presidents who alternately serve one-year terms with the seven members of the Board of Governors, make up its voting membership.
However, even if they are not designated voting members, all Reserve Bank presidents participate in FOMC meetings.
Eight times a year, the 12 members of FOMC meet to consider whether or not short-term monetary policy changes are necessary.
In the event of a vote to change the current course of action, US government securities would either be purchased or sold on the open market in an effort to boost the expansion of the domestic economy.
Committee members are usually characterized as either hawks who advocate tighter monetary policy, doves who favor stimulus, or centrists/moderates who fall somewhere in between.
The Current Members Of The Board
- Jerome Powel, The chair of the Federal Reserve Board
- Lael Brainard, Federal Reserve Board Vice-Chair
- Other Federal Reserve Boards members are Michelle Bowman, Philip Jefferson, Christopher Waller, and Michael Barr.
- Esther George, Kansas City President of the Federal Reserve Bank
- John Williams, New York President of the Federal Reserve Bank
- Susan Collins, Boston President of the Federal Reserve Bank
- Loretta Mester, Cleaveland President of the Federal Reserve Bank
- James Bullard, St.Louis President of the Federal Reserve Bank
There are 12 districts of the Federal Reserve, and each has a Federal Reserve Bank. These local banks function as the central bank’s affiliates in the region. While the presidents of other banks serve one-year terms on a three-year rotating cycle, the president of the Federal Reserve Bank of New York serves continuously except for Chicago and Cleveland, which rotate on a two-year basis.
Each of the following groups has one Reserve Bank president serving on the FOMC’s one-year rotating seats:
- Cleveland and Chicago
- Boston, Philadelphia, and Richmond
- Kansas City, Minneapolis, and San Francisco
- St. Louis, Dallas, and Atlanta
The Federal Bank of New York president always has a voting membership.
What Did They Do At The Meetings?
The FOMC generally holds its eight annual meetings at the Eccles Building’s Board Room in Washington, D.C., and the members may attend the meeting via teleconference if required.
The FOMC can and does meetings more frequently if the economic condition demands it.
In each two-day FOMC meeting held regularly, a senior representative of the Federal Reserve Bank of New York talks about changes in the financial and foreign exchange markets as well as the activity of the Trading Desk at the New York Fed, where US government securities are purchased and sold.
Following that, staff members from the Board of Governors submit their financial and economic projections.
Whether they are voting members that year or not, all 12 Reserve Bank presidents and the Board’s governors provide their analyses on current events and opinions on the economy’s future direction.
The FOMC analyses the monetary policy alternatives that would best steer the economy toward the dual mandate objective set forth by Congress for the Fed: maximum employment and price stability, armed with this wealth of current national, international, and regional information. A decision regarding the policy stance is made at the end of the FOMC meeting.
Operations Of FOMC
The Federal Reserve has the ability to alter the amount of currency in circulation. This is accomplished through OMOs, modifying the discount rate, and establishing the minimum amount of bank reserves.
Setting the discount rate and reserve requirements is the responsibility of the Fed’s Board of Governors, whereas the FOMC is expressly in charge of OMOs, which involve purchasing and selling government assets.
Deposits of the securities the FOMC purchases are made into the System Open Market Account (SOMA) of the Fed, which holds both domestic and international portfolios. US Treasuries and federal agency securities are stored in the domestic portfolio, while investments denominated in euros and Japanese yen are held in the foreign portfolio.
The Federal Reserve Act of 1913 and the Monetary Control Act of 1980 give the FOMC the authority to keep these securities until maturity or to sell them at any time.
The SOMA manager receives the meeting’s outcomes and passes them to the trading desk at the Federal Reserve Bank of New York, which subsequently conducts open-market transactions of government securities until the FOMC mandate is satisfied.
The federal fund rate, or the rate at which depository institutions lend one another their account at the Federal Reserve on an overnight basis, is determined by how all of the Fed’s policy tools interact.
FOMC And Fed
The FOMC and Fed are not the same things. The Federal Open Market Committee (FOMC), a committee within the Fed, is only in charge of open market operations. The reserve requirements and the discount rate were determined by the Board of Governors of the Fed.