The Federal Open Market Committee (FOMC) is the governing body setting monetary policy for the Federal Reserve System of the United States. The board is made up of 12 members, which include the 7 members of the Board of Governors and 5 of the 12 Reserve Bank presidents.
The Chairman of the Board also serves as the Chairman of the FOMC. The president of the Federal Reserve Bank of New York is a permanent member of the committee, and serves a vital function on the committee — namely as Vice Chairman.
The presidents of the other Reserve Banks serve on the four remaining positions on the FOMC and rotate through positions. Every reserve bank president attends FOMC meetings, participating in discussions about the economy and monetary policy.
Normally, there are 8 scheduled meetings a year, each one held 6 or so weeks apart. The committee also holds unscheduled meetings. The FOMC issues a policy statement, summarizing the discussion of the committee.
Finally, the Chairman holds a press conference 4 times per year to discuss their board’s decisions. A full set of minutes for each meeting is published roughly three weeks after the conclusion of each regular meeting with complete transcripts of those meetings published 5 years after the meeting.
The Fed conducts monetary policy by law and has to achieve and maintain its primary goal which is maximum employment and stable prices in the marketplace.
You can read more at Money Morning for detailed commentary about the latest policy statement from the Fed.
Who Are Its Members?
The Federal Open Market Committee is made up of 12 voting members. These members include the 7 members of the Board of Governors and 5 of the 12 Federal Reserve Bank Presidents. The President of the Fed Of New York will serve every year while other presidents of the various reserve banks do not. They rotate on positions on the board with January 1 being the day each board member rotates.
The rotating seats are filled by presidents sitting on the reserve banks of Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.
When Do Meetings Take Place?
The calendar year for the FOMC is published on the Board of Governor’s site.
Why Are Some FOMC Meeting Scheduled For Multiple Days?
The Federal Open Market Committee (FOMC) will meet 8 times per year. Usually, these meetings last for just a day. However, the meetings in January-February and June-July are two-day meetings.
These meetings run longer-run projections of the real and nominal growth of GDP, which determines the growth of the country. GPD is gross domestic product, which is widely considered the barometer for the economy. When GDP rises, the economy is thought to be doing well. When it falls, it is not.
A summary of the projections are included in the Monetary Policy Report, which is then delivered to Congress every February and July. At 2-day meetings, the FOMC also considers longer-run strategies and monetary policy.
Is The FOMC Make Its Objectives Public?
In a statement released at 2 PM on the final day of the FOMC meeting, it does. Statements can be found online at: http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.
Minutes are also available and released to the public three weeks after the policy decision is released. Transcripts are released to the public 5-years after the policy release date.
It’s important to monitor and delay some of the meeting’s discussions because they could have a dramatic impact on the economy and lead investors to make decisions unintended by the Federal Reserve. Since the Federal Reserve sets short-term interest rates, it’s important to keep in mind the effects of releasing notes and minutes of meetings.
When the Fed announces that short-term rates are to rise, it sends a signal to the market that borrowing money may be a wise business decision. This may encourage businesses to take on more debt to grow their business. It may also discourage savers from keeping their savings in fixed or short-term investment accounts.
Conversely, higher interest rates may discourage business growth because borrowing money will be more expensive. When this happens, businesses may use their own internal capital or hold off on business expansion projects.
Savers are encouraged in this environment, because fixed and short-term rates are higher, leading to more saving and less spending. This is often thought to slow down the economy and potentially hurt it because business is not expanding.
Laura Hammond has a background in banking. Now on extended maternity leave she enjoys keeping her business brain active and writes about finance and economy topics as much as her baby girl will let her!