Q & A

What is the FOMC?

The Federal Open Market Committee, or (FOMC), is the Fed's chief body for monetary policy-making. Its members include the seven members of the Board of Governors and the 12 Reserve bank presidents. Alan Greenspan, the chairman of the FOMC, is also the chairman of the Board of Governors.

Where does the FOMC meet?

The Board of Governors is located in Washington, D.C. The meeting takes place in its 56-foot-long boardroom.

What happens at an FOMC meeting?

A senior official of 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 domestic and foreign trading desks. Staff from the Board of Governors then present their economic financial forecasts. In addition, the Board's governors and all 12 Reserve Bank presidents offer their views on the economic outlook. The FOMC discusses the monetary policy options that would best promote economic growth with stable prices, and then it is time to vote. The voting membership includes the seven governors, the president of the Federal Reserve Bank of New York and four of the other Reserve bank presidents, who serve one-year terms on a rotating basis.

What does the FOMC vote on?

They vote on a directive that is issued to the New York Fed's domestic trading desk. The directive informs the desk of the Committee's objective for "open market operations"—whether to ease, tighten or maintain the current policy.

What are open market operations?

The FOMC establishes a target for the federal funds rate, the rate banks charge each other for overnight loans. Open market purchases of government securities increase the amount of reserve funds that banks have available to lend, which puts downward pressure on the federal funds rate. Sales of government securities do just the opposite—they shrink the reserve funds available to lend and put upward pressure on the federal funds rate. The amount of bank lending, of course, affects spending in the economy, which affects demand for goods and services and, thus, prices. By targeting the federal funds rate, the FOMC seeks to provide the monetary stimulus required to foster a healthy economy.

How is the public informed of FOMC decisions?

At the conclusion of each FOMC meeting, the federal funds rate target is announced to the public in a news release. These news releases are also posted on the Board of Governors' web site at http://www.federalreserve.gov/boarddocs/press/monetary/2002/.


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