FOMCAn Introduction to

By Mehwash Sheikh

Under The Guidance Of

Mr. Rahul Dadhich

Introduction:• FOMC stands for Federal Open Market Committee.

• FOMC is the branch of United States Federal Reserve (FED) that determines the direction of monetary policy.

• It is responsible for formulation of a policy designed to promote prices and economic growth. Simply put, the FOMC manages the nation’s money.

History of FOMC:

• The Federal Open Market Committee was formed by the Banking Act and did not include voting rights for the Federal Reserve Board of Governors.

• It was formed to conducts monetary policy to achieve its macroeconomic objective of maximum employment and stable prices, & to adjust the level of short-term interest rates in response to change in economic outlook.

Structure of FOMC :The FOMC is compose of

1. Board of governors: 7 members appointed by the president and approved by the senate.

2. The president of the Federal Reserve Bank of New York.

3. 4 of the other 11 Federal Reserve Banks presidents (served on rotating basis) The president of the Federal Reserve Bank Of New York serves continuously, while the presidents of the other reserve Banks rotate their service of one-year term.

4. The other presidents of federal reserve banks may attend the FOMC meeting but they aren’t vote on the monetary policy issues (non voting members)

William C. DudleyNew York, Vice Chairman.

Stanley FischerBoard of Governors.

Lael BrainardBoard of Governors.

Daniel K. TarulloBoard of Governors.

Jerome H. PowellBoard of Governors

Charles L. EvansChicago.

Jeffery M. LackerRichmond

Dennis P. LockhartAtlanta

John C. WilliamsSan Francisco.

Janet Louise YellenBoard of Governors, Chairman.

Current Members of FOMC: (Year 2015)

Federal Reserve Bank Rotation on the FOMC:Committee membership changes at the first regularly scheduled meeting of the year.

2015 Members - New York, Chicago, Richmond, Atlanta, San Francisco2015 Alternate Members - St. Louis, Kansas, Cleveland, Boston, New York

Alternate Members:

James B. Bullard, St. Louis

Esther L. George, Kansas City

Loretta J. Meser, Oston

Christine M. Cumming, First Vice President, New York

The FOMC Meetings:• The FOMC must meet at least four times each year in Washington D.C.. Since 1981, eight regularly scheduled meetings have been held each year at intervals of five to eight weeks.

• Necessary & Notable changes to the federal fund rate and discount rate were made. • Action such as increasing liquidity of set amount of treasury, bonds, or affecting price of the currencies both foreign and domestic by selling dollar reserve were discussed. • The Committee votes on the policy to be carried out during the interval between meetings, requiring members to think ahead.

• Attendance at meetings is restricted because of the confidential nature of the information discussed and is limited to Committee members.

Modern-day meeting of the Federal Open Market Committee at the Eccles Building, Washington, D.C.

Decision making process of FOMC:On the basis of reports prepared by the Manager of the System Open Market Account on operations in the domestic open market and in foreign currencies, 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. • Fiscal policy.

And then the Committee members and other Reserve Bank presidents turn to policy. Typically, each participant expresses his own views on the state of the economy and prospects for the future and on the appropriate direction for monetary policy. Then each makes a more explicit recommendation on policy for the coming intermeeting period.

Consensus:

• Finally, the Committee must reach a consensus regarding the appropriate course for policy, which is incorporated in a directive to the Federal Reserve Bank of New York.

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

• The directive sets forth the Committee's objectives for long-run growth of certain key monetary and credit aggregates.

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.

• Policy is implemented with emphasis on supplying reserves in a manner consistent with these objectives and with the nation's broader economic objectives.

Current FOMC Issues:

• Economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft.

• The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year.

• Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy import.

• The FOMC member voted to keep interest rates at near zero levels in September, kicking the liftoff can down the road to either October, December or sometime next year, according to the minutes from last month’s FOMC meeting.

Thank You

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