FOMC

The Federal Open Market Committee (FOMC) is the body within the Federal Reserve System responsible for setting U.S. monetary policy. It directs open market operations and sets target ranges for the federal funds rate; its decisions influence short-term interest rates, money supply, and financial conditions.

Composition: The FOMC consists of twelve members: the seven members of the Board of Governors of the Federal Reserve System, and five of the twelve Reserve Bank presidents who, on a rotating basis, participate as voting members. The president of the Federal Reserve Bank of New York has a permanent voting seat; the other four rotating presidents are chosen from the remaining reserve banks. The Chair of the Board of Governors serves as the FOMC chair.

Meetings and decisions: The FOMC typically meets about every six weeks and announces its policy decisions through a statement. It sets a target range for the federal funds rate and signals future policy via the Summary of Economic Projections and the dot plot. The primary policy tool is open market operations, with changes in the level of reserves driving rate movements; other tools include reserve requirements and interest on reserves.

Effects and transparency: FOMC decisions affect interest rates, financial markets, and the broader economy both domestically and internationally. The Committee publishes minutes three weeks after each meeting, and the SEP provides quarterly projections for growth, unemployment, inflation, and policy rates.

Criticisms and context: The FOMC operates with independence from day-to-day political pressure, but its actions are scrutinized for potential lag in policy effects, transparency, and impact on income and asset prices. It functions within the framework of the Federal Reserve Act and the dual mandate of price stability and maximum employment.