Federal Open Market Committee

The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve System (the Fed) that is charged under United States law with overseeing the nation's open market operations (e.g., the Fed's buying and selling of United States Treasury securities).

[1] This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply.

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.

Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members, nonmember Reserve Bank presidents, staff officers, the Manager of the System Open Market Account, and a small number of Board and Reserve Bank staff.

[6] Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents.

In its discussions, the Committee considers factors such as trends in prices and wages, employment and production, consumer income and spending, residential and commercial construction, business investment and inventories, foreign exchange markets, interest rates, money and credit aggregates, and fiscal policy.

Typically, each participant expresses their own views on the state of the economy and prospects for the future and on the appropriate direction for monetary policy.

The directive is cast in terms designed to provide guidance to the Manager in the conduct of day-to-day open market operations.

[6] It also sets forth operating guidelines for the degree of ease or restraint to be sought in reserve conditions and expectations with regard to short-term rates of growth in the monetary aggregates.

Likewise, for a successful and credible central bank like the Federal Reserve, the immediate benefits of adopting a more explicit communication strategy may be modest.

Nevertheless, making the investment now in greater transparency about the central bank's objectives, plans, and assessments of the economy could pay increasing dividends in the future.