The Federal Open Market Committee, or FOMC, is the Fed's chief body for monetary policy. Its voting membership combines the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents, who serve one-year terms on a rotating basis with the other Reserve Bank presidents. All Reserve Bank presidents attend FOMC meetings, however, even when they are not designated voting members. By tradition, the chairman of the FOMC is also the Chair of the Board of Governors.
The chart to the left shows the voting schedule for the FOMC. As noted, the president of the Federal Reserve Bank of New York and members of the Board of Governors are permanent voting members. Most Reserve Bank presidents serve one-year terms on a three-year rotating schedule; however, the presidents of the Cleveland and Chicago Feds serve on a two-year rotating schedule. For example, in Year 1 the presidents of the Boston, Cleveland, St. Louis, and Kansas City Feds serve as voting members.
The FOMC typically meets eight times a year in Washington, D.C. If economic conditions require additional meetings, the FOMC can and does meet more often.
The following occurs at each meeting:
• A senior official at the Federal Reserve Bank of New York discusses developments in the financial and foreign exchange markets, as well as activities of the New York Fed's Trading Desk, where U.S. government securities are bought and sold.
• Staff from the Board of Governors then present their economic and financial forecasts.
• The Board's Governors and all 12 Reserve Bank presidents—whether they are voting members that year or not—offer their views on the economic outlook.
Armed with this wealth of up-to-date national, international, and regional information, the FOMC discusses the monetary policy options that would best promote the economy's sustainable growth.
After all participants have deliberated the options, members vote on a policy that is given to the New York Fed's Trading Desk. The policy directive informs the Desk of the Committee's objective for "open market operations"—whether to maintain or alter the current policy. The Desk then buys or sells U.S. government securities on the open market to achieve this objective.
Next: A Closer Look at Open Market Operations »