donwloadimg

Download App

Log in to access Online Inquiry

What Is The Federal Open Market Committee (FOMC)?

Views 1032022.08.03
https://courseimg.futunn.com/2022072600001115120058d6dc9.png

Key takeaways

  • The Federal Open Market Committee (FOMC) is a branch of the Federal Reserve System that sets the course of monetary policy specifically by carrying out open market operations.

  • The FOMC is composed of seven members from the Board of Governors and five Federal Reserve Bank presidents.

  • The committee has eight regularly scheduled meetings each year that are the subject of much speculation on Wall Street.

Understanding the Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) is a branch of the Federal Reserve System that sets the course of monetary policy specifically by carrying out open market operations (OMOs). 

Open market operations involve the buying and selling of securities on the open market. Securities bought by the FOMC are deposited in the Fed's System Open Market Account (SOMA), which consists of both domestic securities and foreign currency portfolios. The domestic portion holds U.S. Treasuries and federal agency securities, while the foreign portfolio holds investments denominated in euros and Japanese yen.

The FOMC can hold these securities until maturity or sell them at the right timing. This right is granted by the Federal Reserve Act of 1913 and the Monetary Control Act of 1980. A percentage of the Fed's SOMA holdings are held in each of the 12 regional Reserve Banks. However, the Federal Reserve Bank of New York executes all of the Fed's open market transactions.

Simply put, there are several steps involved in the FOMC’s open market operations. The process begins with the FOMChaving one of its regular meetings. Next, the decisions made at the meeting are communicated to the SOMA manager, who then relays them to the trading desk at the Federal Reserve Bank of New York. The Reserve Bank then conducts transactions ofsecurities on the open market to adjust the supply of reserve balances so as to keep the federal funds rate around the target established by the FOMC.

FOMC Members

The Federal Open Market Committee (FOMC) consists of 12 members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; andMinneapolis, Kansas City, and San Francisco.

Nonvoting Reserve Bank presidents attend the meetings of the committee, participate in the discussions, and contribute to the committee's assessment of the economy and policy options.

Members of the committee typically fall into threetypes: hawks favoring tighter monetary policies, doves who support stimulus packages, and centrists/moderates who are somewhere in between. 

Traditionally, the chair of the FOMC is also the chair of the Board of Governors. Currently, the chair of the Federal Reserve Board is Jerome Powell, who was sworn in on Feb. 5, 2018, and is serving a four-year term. Powell is considered a moderate. 

FOMC Meetings

The Federal Open Market Committee (FOMC) has eight regularly scheduled meetings each year, but they can meet more often if it's necessary. 

During the meeting, FOMC discuss developments in the local and global financial markets and economic forecasts. All participants—the Board of Governors and all 12 Reserve Bank presidents—share their views on the country's economic status and discuss which monetary policy would benefit the US most.

After much deliberation by all participants, only designated FOMC members have the right to vote on the monetary policy, which will result in either buying or selling securities on the open market.

The meetings are not held in public and thus are closely watched and even speculated by Wall Street. The stock market generally reacts strongly to any changes in monetary policy. In recent years, FOMC minuteshave been made public after each meeting.

Trade like a pro with moomoo

Get free stock and start your professional trading today

Terms and conditions apply right-arrow
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal.Moomoo is a financial information and trading app offered by Moomoo Techonologies Inc.In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. ("Moomoo Financial SG") regulated by the Monetary Authority of Singapore (MAS). Moomoo Financial SG is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore.In Australia, financial products and services available through the moomoo app are provided by Futu Securities (Australia) Ltd, an Australian Financial Services Licensee (AFSL No. 224663) regulated by the Australian Securities and Investment Commission (ASIC). Please read and understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other disclosure documents which are available on our websites https://www.futuau.com and https://www.moomoo.com/au. Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd. and Futu Securities (Australia) Ltd are affiliated companies.
Expand

Recommended