About the FOMC
The term 'monetary policy' refers to the measures taken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit in order to promote national economic objectives. The Federal Reserve Act of 1913 entrusted the Federal Reserve with the responsibility of defining monetary policy.
The Federal Reserve controls three tools of monetary policy: open market operations, the discount rate, and required reserves. The Board of Governors of the Federal Reserve System is responsible for the discount rate and required reserves, while the Federal Open Market Committee is responsible for open market operations. Through these three tools, the Federal Reserve influences the supply and demand of assets held by depository institutions at Federal Reserve banks, thus changing the federal funds rate. This rate is the interest rate at which depository institutions lend their Federal Reserve assets to other depository institutions on an overnight basis.
The variations in the federal funds rate trigger a chain of events that affect other short-term interest rates, exchange rates, long-term interest rates, the amount of money and credit, and ultimately a series of economic variables, including employment, production, and the prices of goods and services.
Structure of the FOMC
The Federal Open Market Committee (FOMC) is composed of twelve members: the seven members of the Board of Governors of the Federal Reserve; the president of the Federal Reserve Bank of New York; and four of the eleven other reserve bank presidents, who serve one-year terms on a rotating basis. The rotating seats are occupied by the following four groups of banks, with one president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. The reserve bank presidents, who do not have voting rights, attend the Committee meetings, participate in discussions, and contribute to the Committee's assessment of the economy and policy options.
The FOMC holds eight regular meetings each year. During these meetings, the Committee reviews the economic and financial situation, determines the appropriate direction of monetary policy, and assesses the risks to its long-term objectives of price stability and sustainable economic growth.