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The Federal Open Market Committee (FOMC), a committee within the
Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the and of a or formal monetary union, and ove ...
(the Fed), is charged under
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
law with overseeing the nation's
open market operations In macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch ...
(e.g., the Fed's buying and selling of United States Treasury securities). This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply. Under the terms of the original
Federal Reserve Act The Federal Reserve Act was passed by the 63rd United States Congress The 63rd United States Congress was a meeting of the legislative branch of the United States federal government, composed of the United States Senate The United State ...
, each of the Federal Reserve banks was authorized to buy and sell in the open market bonds and short term obligations of the
United States Government The federal government of the United States (U.S. federal government or U.S. government) is the national government of the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or U ...
, bank acceptances, cable transfers, and bills of exchange. Hence, the reserve banks were at times bidding against each other in the open market. In 1922, an informal committee was established to execute purchases and sales. The
Banking Act of 1933 The Banking Act of 1933 () was a statute enacted by the United States Congress The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, comprising a lower body, the Uni ...
formed an official FOMC. The FOMC is the principal organ of United States national monetary policy. The Committee sets
monetary policy Monetary policy is the policy adopted by the monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation targeting, infla ...

monetary policy
by specifying the short-term objective for the Fed's open market operations, which is usually a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans). The FOMC also directs operations undertaken by the Federal Reserve System in
foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision maki ...
s, although any intervention in foreign exchange markets is coordinated with the
U.S. Treasury The Department of the Treasury (USDT) is the national treasury A treasury is either *A government department related to finance and taxation, a Finance minister, finance ministry. *A place or location where treasure, such as currency or precio ...

U.S. Treasury
, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.


Membership

The Committee consists of the seven members of the
Federal Reserve Board The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is ...
, the president of the New York Fed, and four of the other eleven regional
Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an ...
presidents, serving one year terms. The Fed chair has been invariably appointed by the committee as its chair since 1935, solidifying the perception of the two roles as one. The Federal Open Market Committee was formed by the
Banking Act of 1933 The Banking Act of 1933 () was a statute enacted by the United States Congress The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, comprising a lower body, the Uni ...
(codified at ), and did not include voting rights for the
Federal Reserve Board of Governors The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve, Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping ...
. The
Banking Act of 1935 The ''Banking Act of 1935'' passed on August 19, 1935 and was signed into law by the president, Franklin D. Roosevelt Franklin Delano Roosevelt (, ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American ...
revised these protocols to include the Board of Governors and to closely resemble the present-day FOMC, and was amended in 1942 to give the current structure of twelve voting members. Four of the
Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an ...
presidents serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of banks, one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. The New York President always has a voting membership. All of the Reserve Bank presidents, even those who are not currently voting members of the FOMC, attend Committee meetings, participate in discussions, and contribute to the Committee's assessment of the economy and policy options. The Committee meets eight times a year, approximately once every six weeks.


Meetings

By law, the FOMC must meet at least four times each year in
Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument The Washington Monument is an obelisk within the National Mall The National Mall is a Landscape architecture, landscape ...
Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks. If circumstances require consultation or consideration of an action between these regular meetings, members may be called on to participate in a special meeting or a telephone conference, or to vote on a proposed action by
proxy Proxy may refer to: * Proxy or agent (law), a substitute authorized to act for another entity or a document which authorizes the agent so to act * Proxy (climate), a measured variable used to infer the value of a variable of interest in climate r ...
. At each regularly scheduled meeting, the Committee votes on the policy to be carried out during the interval between meetings. Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members, nonmember Reserve Bank presidents, staff officers, the Manager of the System Open Market Account, and a small number of Board and Reserve Bank staff.


Decision-making process

Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents. Reports prepared by the Manager of the System Open Market Account on operations in the domestic open market and in foreign currencies since the last regular meeting are also distributed. At the meeting itself, staff officers present oral reports on the current and prospective business situation, on conditions in financial markets, and on international financial developments. In its discussions, the Committee considers factors such as trends in prices and wages, employment and production, consumer income and spending, residential and commercial construction, business investment and inventories, foreign exchange markets, interest rates, money and credit aggregates, and fiscal policy. The Manager of the System Open Market Account also reports on account transactions since the previous meeting. After these reports, the Committee members and other Reserve Bank presidents turn to policy. Typically, each participant expresses their own views on the state of the economy and prospects for the future and on the appropriate direction for monetary policy. Then each makes a more explicit recommendation on policy for the coming intermeeting period (and for the longer run, if under consideration).


Consensus

Finally, the Committee must reach a consensus regarding the appropriate course for policy, which is incorporated in a directive to the Federal Reserve Bank of New York—the Bank that executes transactions for the System Open Market Account. The directive is cast in terms designed to provide guidance to the Manager in the conduct of day-to-day open market operations. The directive sets forth the Committee's objectives for long-run growth of certain key monetary and credit aggregates. It also sets forth operating guidelines for the degree of ease or restraint to be sought in reserve conditions and expectations with regard to short-term rates of growth in the monetary aggregates. Policy is implemented with emphasis on supplying reserves in a manner consistent with these objectives and with the nation's broader economic objectives.


Congressional oversight

Under the Federal Reserve Act, the Chairman of the Board of Governors of the Federal Reserve System must appear before Congressional hearings at least twice per year regarding "the efforts, activities, objectives and plans of the Board and the Federal Open Market Committee with respect to the conduct of monetary policy". The statute requires that the Chairman appear before the
House Committee on Financial Services The United States House Committee on Financial Services, also referred to as the House Banking Committee and previously known as the Committee on Banking and Currency, is the committee A committee or commission is a body of one or more persons t ...
in February and July of odd-numbered years, and before the
Senate Committee on Banking, Housing, and Urban Affairs Image:Curia Iulia.JPG, The Curia Julia in the Roman Forum A senate is a deliberative assembly, often the upper house or Debating chamber, chamber of a bicameral legislature. The name comes from the Ancient Rome, ancient Roman Senate (Latin: ...
in February and July of even-numbered years. There is a very strong consensus against basing selection of committee members primarily on the candidate's political views.


Interest rate targeting

The committee's practice of
interest rate targeting Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...

interest rate targeting
has been criticized by some commentators who argue that it may risk an inflationary bias. Possible alternative rules that enjoy some support among economists include the traditional
monetarist Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on measures of ...
formula of targeting stable growth in an appropriately chosen monetary aggregate, and
inflation targeting Inflation targeting is a monetary policy Monetary policy is the policy adopted by the monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objectiv ...
, now practiced by many
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money ...

central bank
s. Under inflationary pressure in 1979, the Fed temporarily abandoned interest rate targeting in favor of targeting non-borrowed reserves. It concluded, however, that this approach led to increased volatility in interest rates and monetary growth, and reversed itself in 1982. Former Fed Chairman
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist at the Brookings Institution The Brookings Institution, often referred to simply as Brookings, is an American American(s) may refer to: * American, something of, from, ...

Ben Bernanke
spoke sympathetically as a Governor in 2003 of the
inflation targeting Inflation targeting is a monetary policy Monetary policy is the policy adopted by the monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objectiv ...
approach. He explained that even a central bank like the Fed, which does not orient its monetary policies around an explicit, published inflation target, nonetheless takes account of its goal of low and stable inflation in formulating its interest rate targets. Bernanke summed up his overall assessment of inflation targeting as follows: In keeping with his 2003 speech as Governor, Bernanke as Chairman has attempted to promote greater transparency in Fed communications. The Fed now publicly indicates the range within which it would like to see future inflation.


Current members

The 2021 Members of the FOMC: ;Members *
Jerome Powell Jerome Hayden "Jay" Powell (born February 4, 1953) is the 16th chair of the Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. I ...
, Board of Governors, Chairman * John C. Williams, New York, Vice Chairman *
Richard Clarida Richard Harris Clarida (born May 18, 1957) is an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from eco ...

Richard Clarida
, Board of Governors (Note: Clarida is Vice Chairman of the Federal Reserve, not the FOMC) *
Lael Brainard Lael Brainard (born January 1, 1962) is an American economist who has served on the Federal Reserve Board of Governors The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of ...

Lael Brainard
, Board of Governors * Randal K. Quarles, Board of Governors (Note: Quarles was Vice Chairman of Supervision) *
Michelle Bowman Michelle White "Miki" Bowman (born May 25, 1971) is an American attorney and a Governor A governor is, in most cases, a public official with the power to govern the Executive (government), executive branch of a non-sovereign or sub-national l ...

Michelle Bowman
, Board of Governors (Note: Community Bank seat) *
Christopher Waller Christopher J. Waller is an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write ab ...
, Board of Governors *
Thomas Barkin Thomas I. Barkin (born 1961) is an American Central bank, central banker, who became the eighth president and CEO of the Federal Reserve Bank of Richmond on January 1, 2018. He worked at global management consulting firm McKinsey & Company for 30 y ...
, Richmond *
Raphael Bostic Raphael W. Bostic (born 1966) is an American economist, academic, and public servant who is the 15th President and CEO of the Federal Reserve Bank of Atlanta.
, Atlanta * Mary C. Daly, San Francisco * Charles L. Evans, Chicago ;Alternate Members, 2021 * James Bullard, St. Louis *
Esther George Esther L. George (born January 15, 1958 in Fawcett, Missouri) is president and chief executive of the Federal Reserve Bank of Kansas City. George is a native of Faucett, Missouri, U.S., and received a BSBA degree in Business Administration from Mi ...
, Kansas City * Loretta J. Mester, Cleveland * Kenneth C. Montgomery, Boston * Naureen Hassan, First Vice President, New York Federal Reserve Bank Rotation on the FOMC
Committee membership changes at the first regularly scheduled meeting of the year. In the case of 2022, this is currently planned for January 28, 2022. 2022 Members - New York, Cleveland, Boston, St. Louis, Kansas City 2022 Alternate Members - New York†, Chicago, Philadelphia, Dallas, Minneapolis (Note: For the Federal Reserve Bank of New York, the First Vice President is the alternate for the President.)


See also

* Federal funds probability * Federal funds rate *
Monetary Policy CommitteeMonetary Policy Committee (MPC) may refer to: * Monetary Policy Committee (India) of the Reserve Bank of India * Monetary Policy Committee (United Kingdom) The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets ...
, the equivalent organ of the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
's
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
, and modeled in part on the FOMC


Further reading

* Lunsford, Kurt G. 2020. "Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance." ''American Economic Review'', 110 (9): 2899-2934.


References


External links

*Federal Open Market Committee
official site
*Federal Reserve Bank of Philadelphia
A Day in the Life of the FOMC
*University of Rochester
Shadow Open Market Committee
*Federal Reserve Board

*What happens to the markets on "Fed Days
Fed Day ChartsFOMC Speak
a repository of FOMC participant speeches, testimony, interviews and commentary *Historical documents relating to th
FOMC
as well as th
Open Market Investment Committee
an
Open Market Policy Conference
predecessors of the FOMC
Public Law 305, 74th Congress, H.R. 7617: An Act to Provide for the Sound, Effective, and Uninterrupted Operation of the Banking System [Banking Act of 1935]

Public Law 66, 73d Congress, H.R. 5661: an Act to Provide for the Safer and More Effective Use of the Assets of Banks, to Regulate Interbank Control, to Prevent the Undue Diversion of Funds into Speculative Operations [Banking Act of 1933]
{{Authority control Federal Reserve System 1933 establishments in the United States Committees de:Federal Reserve System#Gremien des Federal Reserve System