Federal Open Market Committee Meeting - FOMC Meeting

DEFINITION of 'Federal Open Market Committee Meeting - FOMC Meeting'

The meeting of the Federal Open Market Committee (FOMC) that occurs eight times a year. In the FOMC meeting, the near-term monetary policy is voted on and decided by the twelve members of the committee. The changes that are decided on, are announced immediately after the FOMC Meeting.

BREAKING DOWN 'Federal Open Market Committee Meeting - FOMC Meeting'

There are twelve members of the FOMC in any given year – seven members of the Board of Governors of the Federal Reserve System, including the Chair of the Board, Janet Yellen; and five of the twelve presidents of the Federal Reserve Bank who serve one-year terms on a three-year rotating schedule, except the president of the Federal Reserve Bank of New York whose term on the FOMC committee is permanent.

The remaining seven of the twelve Reserve Bank presidents that are not designated members in a given year, still attend the FOMC Meetings.

FOMC Meeting Dynamics

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 best monetary policy that would be beneficial for the country. After much deliberation by all participants, only designated FOMC members vote on a policy that they consider appropriate for the time 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 which indicates the rate that the FOMC have voted for federal funds to trade at. The Trading Desk then proceeds to buy or sell government securities on the open market. If the members voted to maintain the current policy, no trading action from the Desk will be required.

2017 Meeting Schedule

The meeting runs eight times a year. However, the FOMC can have more than eight meetings if economic conditions call for it. The committee makes membership changes during the first scheduled meeting of the year. Furthermore, the meetings hold for one or two days, and minutes of regularly scheduled meetings are released to the public three weeks after the date of the policy decision, a vast improvement from the six- to eight-week lag that existed prior to December 14, 2004. The 2017 scheduled meetings are below:

  • Jan 31 to Feb 1 – From the last meeting held in December, the labor market had strengthened and economic activity had expanded. With this information and the projected 2% increase in inflation, the FOMC voted to maintain the target range of the fed funds rate at 0.5 to 0.75%.
  • March 14 to 15 – Information received and reviewed by the FOMC showed that since the last meeting held in February, the economy and job gains continued to be favorable. Inflation also increased, but slightly below the 2% forecasted mark. The Committee decided to raise the target range for the fed funds rate to 0.75 to 1%, from the previous 0.5 to 0.75% range.
  • May 2 to 3 – Unemployment rate continued on a steady decline from March to May, and the inflation rate ran close to the long-run forecast of 2%. In light of these conditions, the target range was maintained at 0.75 to 1% by the Committee which expected economic growth to take off at a faster pace in the near future.
  • June 13 to 14 – Although job gains moderated since the last meeting, the labor market remained solid. The Committee sought to monitor inflation developments closely as inflation had declined on a 12-month basis, but was still expected to go up to 2% over the medium term. Target range for fed funds rate was raised to 1 to 1.25%.
  • July 25 to 26
  • September 19 to 20
  • October 31 to Nov 1
  • December 12 to 13 -

After-Effects of FOMC Meetings

Because the Fed determines interest rate policy 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 change in rate (if any), is often priced into the markets prior to the announcement, which can cause drastic market action should the announcement be different from what was expected. Interest rate cuts can stimulate the economy, but at the same time, reduce the value of the currency.