The Federal Open Market Committee is a 12-member committee within the system of the U.S. Federal Reserve. This committee is responsible for making decisions around our country’s open market operations, which includes decisions about interest rates and the U.S. money supply, and is the primary body that makes decisions about U.S. financial policy. Read on to learn more about the operations of the Federal Open Market Committee.
History of the Federal Open Market Committee
The committee was created with the Banking Act of 1933, although this version of the group did not have voting rights. In 1942, the Act was amended to give the committee the administrative and membership structure that it has today, including seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents. Each of the presidents serves on the committee for one year on a rotating basis.
Decision Making and Administrative Process
The committee must meet in Washington, DC, at least four times a year; typically they come together every five to eight weeks. Attendance at these meetings is severely limited due to the confidential nature of the discussions therein. Before each meeting staff send reports on the current state of the economy and pressing financial issues to the committee. These issues are discussed at the meeting, with members ending the meeting with recommendations for needed financial policy and the direction of leadership the committee should be considering at the present time. When the group reaches a consensus on a particular policy, it is given in a directive to the Federal Reserve Bank. The group also appears before Congress to make recommendations twice each year.
Types of Decisions Made By the Committee
In general, the Federal Open Market Committee is responsible for making decisions that help stave off unemployment and control inflation. By lowering interest rates, for example, money becomes more readily available and unemployment rates fall. Interest rates may need to be lowered if the economy grows too fast, which leads to inflation (devaluation of currency). While the Committee sets a target for interest rates, however, banks themselves are responsible for actually setting these rates.
Resources for More Information
If you want to learn more about the Federal Open Market Committee, the best place to start is on its official website. Not only does this website have the minutes of each meeting of the Committee, it also includes transcripts of all the meetings for an entire year. You can also read through The Economist’s collection of news stories about the committee, available online. Forbes also has an in-depth exploration of how the committee works, available on its website.
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Although the work of the Federal Open Market Committee may seem abstract if you do not have a background in finance, these meetings have very real consequences for working Americans–for example, determining how much your money will be worth in the coming year and how much the things you need to buy will cost.