Federal Open Market Committee (FOMC)
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The Federal Open Market Committee (FOMC) is responsible for open market operations and thus controlling monetary policy. Open market operations involve the purchase and sale of treasury bonds, and controlling the flow of liquidity to commercial banks, in order to influence short-term interest rates. Assets which are acquired by the FOMC in open market operations are held in the Fed’s System Open Market Account (SOMA).
Organizational Structure of The FOMC
The Federal Open Market Committee is a subsection of the U.S. Federal Reserve System. The FOMC consists of 12 voting members, including the seven governors on the Board of Governors, the president of the Federal Reserve Bank of New York, and four other reserve bank presidents who serve single year terms in rotation.
The FOMC holds eight meetings each year to review the economic and financial conditions of the central banking system and contemplate appropriate monetary policy. There are also seven non-voting members of the FOMC, who participate in discussions and contribute to the analysis of policy questions.
FOMC’s Function and Objectives
The FOMC is the policymaking body which governs the business of lending and borrowing on a national scale, and decides in large part the value of the dollar by issuing reserves to commercial banks, which in turn forms the base of fractional reserve banking in the U.S.
The FOMC implements monetary policy by changing the lending behavior of commercial financial institutions, primarily by creating new reserve accounts which allow commercial banks to lend more cash at lower interest rates.