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What is the FOMC?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 November 2016
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The Federal Open Market Committee (FOMC) is a branch of the Federal Reserve Bank in the United States. The FOMC is the policy making arm of the Federal Reserve, and has eight meetings a year to assess the current market and make decisions which are intended to keep it running smoothly. While the decisions that the FOMC makes only directly impact funds held by the Federal Reserve Bank, they have a ripple effect on the market in general, and the results of FOMC meetings are eagerly awaited by the finance industry.

The FOMC has 12 members. Seven of the members come from the Federal Reserve Bank Board, and are appointed by the president of the United States. 12 reserve banks from around the nation are represented at FOMC meetings: the president of the New York Reserve Bank has a permanent seat on the committee with full voting rights, and the remaining four seats are filled on a rotating basis with presidents of the various reserve banks. Each president serves with voting rights for one year before stepping down to allow another president to take his or her place, ensuring even representation.

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At FOMC meetings, the members of the committee give presentations about the current market, along with projections. The representative from San Francisco, for example, might discuss the current health of the technology industry, which the Chicago representative might give a report about the Chicago Mercantile Exchange. The voting members consider the information offered about the market while they reach a decision on where federal interest rates should be set, and whether securities should be bought or sold to increase or decrease the supply of available currency.

The goal of the FOMC is to maintain a stable and healthy economy with high employment rates and reasonable rates of credit. If inflation is running rampant, the FOMC may choose to restrict available credit to reduce it, or it may choose to slash interest rates and make more credit available to stimulate a sluggish economy. The voting members carefully weigh the available information and forecasts when they vote behind closed doors, and then the results are released to the public, usually triggering a radical response on the open market.

In addition to eight regularly scheduled meetings, the FOMC can also meet on short notice in a case of national emergency or urgent need. The committee is capable of making rapid decisions to ward off potential economic instability, and the Federal Reserve Bank, along with the nation, relies upon the FOMC to make sound choices for the American economy.

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