Word of the Day: Federal Open Market Committee (FOMC)

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• published: 14 Dec 2011
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The branch of the Federal Reserve Board that determines the direction of monetary policy, using three major tools including raising or lowering the discount rate, adjusting reserve requirements, and engaging in open market operations. The FOMC holds eight regularly scheduled meetings per year. The Federal Open Market Committee was formed by the Banking Act of 1933 (codified at 12 U.S.C. 263), and did not include voting rights for the Board of Governors. The Banking Act of 1935 revised these protocols to include the Board of Governors and to closely resemble the present-day FOMC, and was amended in 1942 to give the current structure of twelve voting members[3]: the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Board presidents. The Federal Reserve Board of New York president always sits on the Committee, and the other presidents 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; and Minneapolis, Kansas City, and San Francisco. All of the Reserve Bank presidents, even those who are not currently voting members of the FOMC, attend Committee meetings, participate in discussions, and contribute to the Committee's assessment of the economy and policy options. The Committee meets eight times a year, approximately once every six weeks.