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The Federal Open Market Committee (FOMC) convenes this week (March 17th) since Federal Reserve Chair Jerome Powell announced the central bank would tolerate a little bit more inflation. Traders and market participants will have a chance to gain more insight as to the recent changes in the Federal Reserve's monetary policy. 

What is the Federal Open Market Committee (FOMC)?

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System(FRS) that determines the direction of monetary policy specifically by directing open market operations (OMO). The committee is made up of twelve members: the chairman, seven governors from the FRB (Federal Reserve Board) appointed by Congress, and four regional fed presidents.

When it is reported in the news that the Fed has changed interest rates, it is the result of the FOMC's regular meetings.

Current FOMC Members

The 12 members of the FOMC meet eight times a year to discuss whether here should be any changes to near-term monetary policy. A vote to change policy would result in either buying or selling U.S. government securities on the open market to promote the growth of the national economy.

The FOMC consists of the board of governors, which has seven members, and five Federal Reserve Bank presidents. Members of the committee are typically categorized as hawks favoring tighter monetary policies, doves who favor stimulus, or centrists/moderates, somewhere in between.

By tradition, the chairman of the FOMC is also the Chair of the Board of Governors. The current Chair of the Federal Reserve Board is Jerome Powell who was sworn in on February 5, 2018. Powell is considered a moderate. Other members include Richard Clarida, Randall Quarles, Lael Brainard, and Michelle Bowman. The remaining two positions are vacant as of Aug. 28, 2020.

The vice chairman of the FOMC is also the president of the Federal Reserve Bank of New York, a position currently filled by John C. Williams, who took office on June 18, 2018, as the 11th president and chief executive officer of the 2nd District Federal Reserve Bank of New York. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other Reserve Banks serve one-year terms on a three-year rotating schedule.

Federal Reserve Bank Rotation on the FOMC

The one-year rotating seats of the FOMC are always comprised of one Reserve Bank president from each of the following groups:

• Boston, Philadelphia, and Richmond

• Cleveland and Chicago

• St. Louis, Dallas, and Atlanta

• Kansas City, Minneapolis, and San Francisco

Committee membership changes at the first regularly scheduled meeting of the year.

Decision-making process

Before each regularly scheduled meeting of the FOMC, System staff prepare written reports on past and prospective economic and financial developments that are sent to Committee members and to nonmember Reserve Bank presidents. Reports prepared by the Manager of the System Open Market Account on operations in the domestic open market and in foreign currencies since the last regular meeting are also distributed. At the meeting itself, staff officers present oral reports on the current and prospective business situation, on conditions in financial markets, and on international financial developments.

In its discussions, 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, and fiscal policy. The Manager of the System Open Market Account also reports on account transactions since the previous meeting.

After these reports, the Committee members and other Reserve Bank presidents turn to policy. Typically, each participant expresses his or her 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 (and for the longer run, if under consideration).

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