The Federal Open Market Committee, or FOMC is the Federal Reserve’s chief body for monetary policy. As per Kavan Choksi, the FOMC basically is the group of Fed officials that are provided with the sole authority of voting on whether to lower, raise or maintain interest rates. The FOMC is one of three branches within the Federal Reserve System.
Kavan Choksi talks about the Federal Open Market Committee or FOMC
The Federal Open Market Committee or FOMC is a branch of the Federal Reserve System (FRS). It is responsible for determining the direction of monetary policy in the United States, by directing the OMOs or open market operations. FOMC is made up of 12 members, which includes:
- 7 members of the Board of Governors
- The president of the Federal Reserve Bank of New York
- 4 of the remaining 11 Reserve Bank presidents that serve on a rotating basis
The 12 members of the FOMC meet eight times annually in order to discuss whether or not there must be any changes to near-term monetary policy. A vote to change policy might result in either the buying or selling of the U.S. government securities on the open market. This purchase or sale is done in order to promote the healthy growth of the national economy. The Fed’s Board of Governors is responsible for setting both the discount rate and reserve requirements, whereas the FOMC is primarily tasked with conducting open market operations, which involve the buying and selling of government securities. Members of the FOMC are typically categorized as hawks that favour tighter monetary policies, doves who favour stimulus or centrists’ moderates who are somewhere in between.
The FOMC chair is also the chair of the Board of Governors. There are 12 Federal Reserve districts, and each of them has its own Federal Reserve Bank. Such regional banks tend to operate as an extension of the central bank. The president of the Federal Reserve Bank of New York serves continuously. On the other hand, the presidents of the other regional Federal Reserve Banks serve one-year terms on a three-year rotating schedule.
While FOMC has eight regularly scheduled meetings every year, they may meet more often in case a need arises. The meetings are not held in public. Hence, they tend to be the subject of the high deal of speculation on Wall Street. Analysts try to predict if the Fed shall tighten or loosen the money supply, with a resulting reduction or increase in interest rates. In the opinion of Kavan Choksi, the FOMC meeting minutes have been made public following the meetings in recent years. When it is reported in the news that the Fed interest rates have been changed, one should know that it is the result of the FOMC’s meetings.
During the FOMC meetings, members typically discuss discerning developments in the local and global financial markets, along with economic and financial forecasts. All participants share their views on the economic stance of the country, and also talk about the monetary policy that would be most beneficial for the nation. Subsequent to deliberation by all participants, only designated FOMC members get to vote on a policy that they consider appropriate for the period.
