Fundamental Analysis Education

Understanding the FOMC: Who They Are and What They Do

The FOMC, who are these people and what do they do? The Federal Open Market Committee or FOMC is the branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors which has seven members and five reserve bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of other reserve banks rotate their service of one-year terms.

The FOMC meets eight times a year to set key interest rates such as the discount rate. It also decides whether to increase or decrease the money supply, which it does by buying and selling government securities. For example, to tighten the money supply or decrease the amount of money available in the banking system, the Fed sells government securities. Analysts try to guess whether the Fed will tighten or loosen the money supply, thereby causing interest rates to rise or fall. What do you think will happen?