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Federal Open Market Committee (FOMC) – Definition

Federal Open Market Committee Meeting (FOMC) Meeting

The Federal Open Market Committee is a subdivision of the United States’ Federal Reserve System (the Fed), responsible for overseeing the nation’s operations in the open market. The open market operations may include buying and selling of Treasury securities.

FOMC meeting is also responsible for articulating the monetary policy for the Federal Reserve and determining the eligibility of the Fed to join the foreign exchange market.

A Little More on What is the Federal Open Market Committee

The Federal Open Market Committee usually schedules their meetings eight times a year, each meeting lasting about two days. In case of emergencies, the committee can hold a meeting without a schedule to address the matter.

Before each meeting, the staff members brief the FOMC members on the current US economic conditions. Also, each Reserve Bank prepares a book for the public, which contains descriptions of the economic conditions in each district.

 The Structure of the FOMC Meeting

Twelve members make up the Federal Open Market Committee meeting. The president of New York’s Federal Reserve Bank, seven members of the Fed’s Board of Governors, and four Reserve Bank presidents who serve every year on a rotational basis.

FOMC Chairman

Habitually, the Federal Open Market Committee’s chairman also serves as the chairman of the Federal Reserve Board of Governors. Jerome H. Powell is the current chairman of FOMC, nominated by President Trump, and sworn in on the 5th of February, 2018. The other board members are Michelle W. Bowman, Lael Brainard, Randal Quarles, and Richard Clarida.

FOMC Vice Chairman

The serving vice-chair of FOMC is John C. Williams, and he is also the president of New York’s Federal Reserve Bank. While the presidents of other Federal Banks rotate yearly, the president of the Federal Reserve Bank of New York has a longer-term.

The rotating presidents

The four rotating presidential seats come from the following groups of banks, each group having one bank president;

  • Charles Evans representing Cleveland and Chicago
  • James Bullard representing Atlanta, Dallas, and St. Louis
  • Eric Rosengren representing Boston, Richmond, and Philadelphia
  • Esther George representing Kansas City, San Francisco, and Minneapolis

 FOMC Meeting Operations

The committee sets the target rates for the Federal Reserve funds so that it becomes easier for them to adjust the rates in the future. The banks make use of the target rates in the overnight market when lending and borrowing funds from each other, to maintain the Federal Reserve.

During their meetings, the committee addresses issues on inflation and unemployment and also highlights the performance of the general economy.

The Reserve Bank presidents, who do not vote usually attend the FOMC meetings, take part in their discussions and help them to assess policy and economic choices. At their meetings, the committee members do the following;

  • Review the financial and economic conditions of the market
  • Decides the position that the monetary policy
  • Assess the risks of the monetary policy and its long-term goals and how it will affect the growth of the economy.

 Effects of FOCM Meeting

The Federal Open Market Committee affects citizens since they are in charge of the Federal Reserve fund rates. The rates then have an impact on the overall funds that will be available for investors to invest in business, property, or real estate. The FOCM’s interest rates also affect returns on investments and the future value of a property.

Everybody needs to be attentive whenever FOCM announces their meeting results, to be aware of the forthcoming economic changes, and to act towards managing their finances.

Role of the Fed versus the FOMC Meeting

The monetary policy describes the actions that a central bank takes to make funds available for credit to boost the national economy. Monetary policy has three tools; the discount rate, open market operations, and reserve requirements, each under the control of the Federal Reserve. The Fed uses these three tools to impact the supply of and demand for balance funds that credit institutions keep at the Fed banks.

The Fed’s Board of Governors is accountable for reserve requirements and the discount rate, while the FOMC is accountable for the open market operations. The operations in the open markets usually involve buying and selling of government securities. For example, the FOMC may reduce the amount available in the bank reserve, and tighten the supply of money in the market. The Federal Open Market Committee specifies the Fed’s short-term goals in the open market, usually the federal funds’ target rate.

The Fed’s System Open Market Account (SOMA) stores all the securities that FOMC buys, and it consists of a foreign and domestic portfolio. The foreign portfolio stores investments in Japanese Yen and Euros denominations, while the domestic portfolio holds Federal Agency securities and US Treasuries.

FOMC meeting may decide to preserve the securities until their maturity date or sell them according to the market analysis. The Fed’s Bank of New York performs all the trades in the open market, and each regional Reserve bank stores a certain percentage of the account holdings.

References for “Federal Open Market Committee Meeting – FOMC Meeting”

https://www.investopedia.com/terms/f/fomcmeeting.asp

https://www.fxstreet.com/macroeconomics/central-banks/fed

https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

https://www.ig.com › Learn to trade › Financial events

https://www.thebalance.com › Investing › US Economy › Monetary Policy

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