What is Federal Open Market Committee (FOMC) Meeting?

Federal Open Market Committee (FOMC) meeting refers to the 12 members of the FOMC who meet eight times a year to determine if there should be any changes to near-term monetary policy which they announce immediately afterwards.

Key Takeaways

  • FOMC meeting refers to the 12 members of the FOMC who meet eight times a year to determine if there should be any changes to near-term monetary policy which they announce immediately afterwards.
  • During the FOMC meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts though only designated FOMC members get to vote on policy.
  • FOMC meeting results are communicated to the SOMA manager who relays them to the trading desk at the Federal Reserve Bank of New York which then conducts transactions of government securities on the open market until this FOMC mandate is met.

Understanding FOMC Meeting

There are 12 members of the FOMC in any given year, of which seven are members of the Board of Governors of the Federal Reserve System (FRS). The FOMC includes the Chair of the Board, currently Jerome Powell, and five of the twelve presidents of the Federal Reserve Bank who serve one-year terms on a three-year rotating schedule, with the lone exception being the president of the Federal Reserve Bank of New York whose term on the FOMC committee is permanent. The remaining Reserve Bank presidents that are not designated members in a given year still attend the FOMC meetings.

During the meeting, members discuss developments in the local and global financial markets, as well as economic and financial forecasts. All participants – Board of Governors and all twelve Reserve Bank presidents – share their views on the country’s economic stance and converse on the monetary policy that would be most beneficial for the country. After much deliberation by all participants, only designated FOMC members get to vote on a policy that they consider appropriate for the period.

The results of the vote are communicated to the manager of the System Open Market Account (SOMA), who is responsible for the staff of the trading desk at the Federal Reserve Bank of New York where government securities are bought and sold. The trading desk receives the directives from the FOMC that indicate their prescribed federal funds target rate. The trading desk then proceeds to buy or sell government securities on the open market until this mandate is met. If the members voted to maintain the current policy, no trading action from the desk would be required.

Because the Fed determines the interest rate at the FOMC meeting, the announcement following this meeting is very important. Speculation often occurs weeks in advance about what will happen with interest rates following the meeting. The expected changes, or lack thereof, in the target rates (fed funds rate and discount rate), is often priced into the markets prior to the announcement. Therefore, any surprises can result in a drastic rise in market volatility. Interest rate cuts can stimulate the economy, but at the same time reduce the value of the currency while rate hikes can curtail economic activity but increase the value of the currency.