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The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System responsible for determining the direction of monetary policy. The committee, which was established in 1933, is composed of the seven members of the Board of Governors of the Federal Reserve System and five Federal Reserve Bank presidents. At each of the eight regularly scheduled meetings, the FOMC sets a target for the federal funds rate, or the interest rate at which banks lend money to each other on an overnight basis. This rate is a key driver of economic activity since it affects lending rates, saving rates, and Treasury bond yields. Other monetary policy decisions that are made by the FOMC include setting the total size of the economic stimulus package and setting the federal discount rate, the rate that banks pay to borrow from the Federal Reserve.
The FOMC's decisions are watched closely by all sectors of the financial industry, as any change in the federal funds rate can have a significant effect on investors and traders. The expectations that emerge from the FOMC's deliberations tend to move stock markets and other asset classes. Further, the decisions made by the FOMC are often speculative, as the FOMC may adopt an unexpected, or even an off-the-cuff, position which, depending on its size and force, can send economic shockwaves throughout the country.
One of the most important roles of the FOMC is to ensure that the nation's money supply remains in balance and does not become too tight or too loose. Tight money means that credit is more expensive and harder to obtain. Loose money means that credit is less expensive and easier to obtain. Too much of either of these can have a negative effect on the economy. By managing the federal funds rate, the FOMC can ensure that the supply of money is just right.
In summary, the Federal Open Market Committee is one of the most important bodies overseeing the Federal Reserve System. Through its regular meetings and policy decisions, the FOMC sets the course for the nation's economy and helps to protect it against weak and excessive credit conditions. The FOMC's decisions are always watched closely by all segments of the financial market, as the markets can be directly influenced by any move made by the FOMC.
The FOMC's decisions are watched closely by all sectors of the financial industry, as any change in the federal funds rate can have a significant effect on investors and traders. The expectations that emerge from the FOMC's deliberations tend to move stock markets and other asset classes. Further, the decisions made by the FOMC are often speculative, as the FOMC may adopt an unexpected, or even an off-the-cuff, position which, depending on its size and force, can send economic shockwaves throughout the country.
One of the most important roles of the FOMC is to ensure that the nation's money supply remains in balance and does not become too tight or too loose. Tight money means that credit is more expensive and harder to obtain. Loose money means that credit is less expensive and easier to obtain. Too much of either of these can have a negative effect on the economy. By managing the federal funds rate, the FOMC can ensure that the supply of money is just right.
In summary, the Federal Open Market Committee is one of the most important bodies overseeing the Federal Reserve System. Through its regular meetings and policy decisions, the FOMC sets the course for the nation's economy and helps to protect it against weak and excessive credit conditions. The FOMC's decisions are always watched closely by all segments of the financial market, as the markets can be directly influenced by any move made by the FOMC.