Categories: GlossaryStarting Up

Federal Open Market Committee – FOMC – Definition

The Federal Open Market Committee is the branch of the Federal Board responsible for determining the direction of monetary policy. It is composed of the board’s governors, which has seven members, and five Reserve Bank Presidents. Its aim is to coordinate monetary policy and the most important economic issues for the country.

The FOMC is charged under the United States law with overseeing the nation’s open market and it is the principal organ of U.S national monetary policy. The Committee specifies the short term objective of the Fed’s (Federal Reserve System) open market operations, which is usually a target for the federal funds’ rate – the rate that commercial banks charge between themselves for overnight loans. This is done due to set monetary policy in the country.

Membership

The Committee consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. Four of the Federal Reserve Bank presidents serve a one-year term on a rotating basis. But enough ‘number talks.’ Who attends the FOMC meetings? All of the Reserve Bank Presidents, even those who are not currently voting members of the Committee, attend sessions, participate in discussions, and contribute to the Committee’s assessments of the economy and policy options.

The Committee meets eight times a year, approximately once every six weeks. It is regulated by law – the FOMC must meet at least four times each year in Washington, D.C. At each regularly scheduled meeting, the Committee votes on policies to be carried out during the intervals between meetings. Of course, sometimes some circumstances require an urgent, additional consultation, or consideration of further actions between the regular and scheduled meetings. In situations like this, the Committee’s members may be called on to participate in a special session, or a telephone conference, to solve the urgent cases.

The Committee’s Discussions

During its meetings, the Federal Open Market Committee considers many factors connected with the monetary system and other important economic issues. The Committee considers factors such as trends in prices and wages, employment and production, consumer income and spending, residential and commercial construction, business investment, foreign exchange markets and fiscal policy. That’s quite a lot, and the Committee’s secondary task is to report to all of these commercial areas.
After these reports, the Committee members and other Reserve Bank presidents turn their attention to policy. Typically each participant expresses his or her views on the state of the economy, as well as prospects for the future, and the appropriate direction for monetary policy.

Consensus

Finally, the Committee reaches an agreement, which determines the appropriate course of the economic policy.

Emilia Pluta

Traveler, business psychology student, and analog photography enthusiast. Crazy about Southeast Asia and everything that comes from this part of the world, especially smiling people and food. Planning to go on a trip around the world in more than 80 days, to have enough time to feel the smells, tastes and talk to as many people as it’s possible. Dreaming of doing both – writing and lying under the palm tree in the future.

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Emilia Pluta

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