By Austin Roberts, Social Media Analyst
The Federal Reserve has the important job of determining monetary policy for the United States. How does the central bank come to decisions about key interest rates and its other actions in that role? Those decisions are primarily made by a group of leaders within the Federal Reserve System known as the Federal Open Market Committee (FOMC).
The Federal Open Market Committee—the main monetary policymaking body of the Federal Reserve—makes decisions regarding national monetary policy for the U.S. The committee’s primary policy tool is interest rate policy: setting a target range for the federal funds rate, the interest rate that banks charge each other for overnight loans. Unconventional tools that the committee has used in certain circumstances include:
The FOMC makes these decisions with the aim of achieving the Federal Reserve’s legislated mandate from Congress. That mandate—price stability and maximum sustainable employment—is often called the Fed’s “dual mandate.”
The FOMC schedules eight regular monetary policy meetings throughout the year, usually in Washington, D.C. The committee holds other meetings as necessary. For example, the committee had two unscheduled meetings in March 2020 to address risks to the economy from the pandemic.
Often, members of the committee will vote unanimously on decisions. However, they sometimes dissent, or vote against the majority. As of the January 2021 meeting, there have been nearly 500 dissents since 1936, according to data tracked by the St. Louis Fed.
FOMC meetings are closed to the public; however, the committee releases a statement after each regularly scheduled meeting about any decisions made and the FOMC’s economic outlook. For further transparency:
(For some additional examples of transparency regarding monetary policy decisions, see the “More to Explore” section at the end of this post.)
When fully staffed, the Federal Open Market Committee is composed of 12 voting members; seven seats are filled by the members of the Board of Governors, with regional Reserve bank presidents occupying the remaining five seats.
The chair of the Federal Reserve also serves as the chair of the FOMC. The president of the Federal Reserve Bank of New York is a permanent voting member of the FOMC and serves as the vice chair. Presidents from the other Reserve banks fill the four remaining voting seats on a rotating basis, holding one-year terms.
It is important to note, however, that all Federal Reserve bank presidents attend the FOMC meetings, participate in the discussions, give their assessments of national and regional economic conditions and share their views on appropriate policy. This is one way the Fed’s decentralized, regional structure plays an important role in determining U.S. monetary policy, as explained in a 2013 Ask an Economist article featuring David Wheelock, a senior vice president and special policy advisor at the St. Louis Fed.
As previously mentioned, all seven members of the Fed’s Board of Governors are FOMC voting members. The governors are appointed by the U.S. president and are confirmed by the Senate. There sometimes are vacancies on the Board.
As of February 2021, there is one vacancy on the Board of Governors and the six members are:
John Williams is the president of the New York Fed with its permanent voting member seat. The table below shows the remaining four FOMC voting members for 2021, as well as those who voted the previous year and those who are scheduled to vote in 2022.
|Patrick Harker, Philadelphia Fed||Thomas Barkin, Richmond Fed||James Bullard, St. Louis Fed|
|Robert Kaplan, Dallas Fed||Raphael Bostic, Atlanta Fed||Esther George, Kansas City Fed|
|Neel Kashkari, Minneapolis Fed||Mary Daly, San Francisco Fed||Loretta Mester, Cleveland Fed|
|Loretta Mester, Cleveland Fed||Charles Evans, Chicago Fed||Eric Rosengren, Boston Fed|
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. On occasion, an alternate member will vote at an FOMC meeting if a scheduled voter is unable to attend, like in November 2020 when Mary Daly voted in Neel Kashkari’s absence.
The FOMC weighs up-to-date regional, national and international information to make monetary policy decisions that are aimed at promoting the Fed’s maximum employment and price stability goals. And the Fed’s regional structure helps ensure that economic conditions from across the country are represented in the monetary policymaking process.
In the St. Louis Fed’s 2013 annual report commemorating 100 years of service, St. Louis Fed President James Bullard said that the Fed’s regional representation is central to the effectiveness of the FOMC.
“The 19 FOMC participants (the seven members of the Board of Governors and the 12 Reserve bank presidents) bring different views to monetary policy discussions,” he said. “Obtaining input from a diverse group results in better decisions and, hence, better macroeconomic outcomes.”
He added that FOMC participants rely on input from people both within and outside the Federal Reserve System, including boards of directors at regional Reserve banks, research economists, and business, labor and civic leaders throughout the U.S.