Federal Open Market Committee (FOMC)

What Is the Federal Open Market Committee?

The Federal Open Market Committee (FOMC) is the primary monetary policymaking body within the Federal Reserve System, responsible for setting the federal funds rate and directing open market operations. As the most influential component of the Fed’s three-part structure, the FOMC makes decisions that directly impact the U.S. economy’s direction through monetary policy.

The FOMC consists of twelve voting members:  seven members from the Fed Board of Governors, the Fed Reserve Bank of New York president, and four other Reserve Bank presidents (who serve one-year terms on a rotating basis). The Chair of the Federal Reserve Board of Governors serves as the FOMC Chair.

The main FOMC meetings are held every six weeks, which is about eight meetings annually. However, this schedule is flexible in cases of unexpected microeconomic shifts.

FOMC meetings often mean increased volatility for traders. This comes from potential changes in federal fund rates, which may result in a change in short-term and long-term interest rates, foreign exchange rates, employment output, and product costs.

What Does the FOMC Do?

The FOMC technically:

• Sets Federal Funds Rate Targets –  The FOMC’s primary tool is setting the target range for the federal funds rate—the interest rate at which banks lend to each other overnight. This benchmark rate influences virtually all other interest rates in the economy, including those for mortgages, business loans, savings accounts, and credit cards.
• Directs Open Market Operations: The committee instructs the Federal Reserve Bank of New York’s trading desk to buy or sell U.S. Treasury securities and other government-backed securities in the open market. These operations directly influence the money supply and short-term interest rates by adding or removing money from the banking system.
• Manages the Fed’s Securities Portfolio: The FOMC oversees the composition and size of the Federal Reserve’s balance sheet, including decisions about purchasing or selling longer-term securities to influence long-term interest rates and overall financial conditions.
• Provides Forward Guidance: The committee communicates its future policy intentions through meeting statements, press conferences, and economic projections, helping to shape market expectations and economic planning.
• Publishes Economic Projections: Four times per year, the FOMC releases the Summary of Economic Projections, which includes each member’s forecasts for key economic indicators and their individual projections for appropriate future interest rate levels.

To summarize, the Fed Board of Governors sets the reserve requirements and discount rates. FOMC itself is specifically responsible for open market operations – that is, it controls the U.S.’s cash supply through open markets.