Federal Open Market Committee Flashcards, test questions and answers

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What is Federal Open Market Committee?

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that is responsible for managing the money supply and interest rates in order to promote economic growth and stability. The FOMC consists of twelve members, including seven governors from the Federal Reserve Board, five presidents from each of the twelve regional banks, and one member of the Board of Governors who serves as chair. The FOMC meets at least eight times per year to discuss economic conditions and set a target for federal funds rate. This rate influences other short-term interest rates, such as those on mortgages and credit cards, which ultimately affects consumer borrowing costs.The FOMC’s primary tools for achieving its objectives are open market operations (purchasing or selling government securities) and setting reserve requirements (the amount that banks must keep in their vaults). The committee also influences money supply through changes in discount rates (the interest rate charged by Federal Reserve Banks to depository institutions), changes in margin requirements (the portion of loan value that must be paid with cash or collateral), and regulation Q ceilings (limits on how much can be paid out on savings accounts). These tools help ensure that prices remain stable, unemployment low, economic growth steady, businesses profitable, international trade strong, inflation under control, and long-term investment productive. In addition to providing a platform for discussing monetary policy issues between meetings of the Board of Governors, the FOMC issues statements after each meeting summarizing its policy decisions. These statements provide transparency into how it will manage monetary policy going forward. By informing markets about what it plans to do next with regards to monetary policies such as setting a target for federal funds rate or conducting open market operations investors can make better informed decisions about where they should allocate their capital over time. The FOMC is an important component of U.S. financial system since it helps shape economic activity by influencing availability and cost of credit across all sectors while keeping inflation under control – helping businesses grow while protecting people’s savings from devaluation over time.