Federal Open Market Committee—FOMC Definition

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC meets several times a year to discuss whether to maintain or change current 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.

• The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy—specifically, by directing open market operations.
• The FOMC is composed of the board of governors, which has seven members, and five Federal Reserve Bank presidents.
• The Committee has eight regularly scheduled "secret" meetings each year that are the subject of much speculation on Wall Street.

FOMC Chairman

By tradition, the chairman of the FOMC is also the Chair of the Board of Governors. Nominated by President Donald Trump, Jerome Powell was sworn in as the Chair of the Federal Reserve Board on February 5, 2018. Powell is considered a moderate. The members other than the Chair include Randall Quarles, a centrist, and Lael Brainard, a dove. The remaining three positions are left unfilled.

FOMC Vice Chairman

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. 

FOMC Rotating Seats

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

The geographic-group system helps ensure that all regions of the United States receive fair representation.

The Federal Open Market Committee (FOMC) has eight regularly scheduled meetings each year, although they may meet more often, if necessary. The meetings are secret, and therefore, are the subject of much speculation on Wall Street, as analysts postulate on whether the Fed will tighten or loosen the money supply with a resulting rise or fall in interest rates.

The interaction of all the Fed's policy tools determines the federal funds rate or the rate at which depository institutions lend their balances at the Federal Reserve to each other on an overnight basis. The federal funds rate, in turn, influences other short-term and long-term interest rates; foreign exchange rates; and the supply of credit and demand for investment, employment, and economic output.

Through open market operations, adjusting the discount rate and setting bank reserve requirements, the Federal Reserve possesses the tools necessary to increase or decrease the money supply. The Fed's Board of Governors is in charge of setting the discount rate and reserve requirements, while the FOMC is specifically in charge of open market operations, which entails buying and selling government securities. For example, to tighten the money supply and decrease the amount of money available in the banking system, the Fed would offer government securities for sale.

Securities bought by the FOMC are deposited in the Fed's System Open Market Account (SOMA), which consists of a domestic and a foreign portfolio. The domestic portfolio holds U.S. Treasuries and Federal Agency securities, while the foreign portfolio holds investments denominated in euros and Japanese yen.

The FOMC can hold these securities until maturity or sell them when they see fit, as granted by the Federal Reserve Act of 1913 and Monetary Control Act of 1980. A percentage of the Fed's SOMA holdings are held in each of the 12 regional Reserve Banks. However, the Federal Reserve Bank of New York executes all of the Fed's open market transactions.

On January 29, 2019, at its annual organizational meeting, the FOMC unanimously reaffirmed its "Statement of Longer-Run Goals and Monetary Policy Strategy" with an updated reference to the median of participants' estimates of the longer-run normal rate of unemployment in the most recent "Summary of Economic Projections" (December 2018).

This statement is based on the FOMC's commitment to fulfilling a statutory mandate from Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. Since monetary policy determines the inflation rate over the long term, the FOMC can specify a longer-run goal for inflation. The FOMC reaffirms its judgment that inflation at the rate of 2%, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s statutory mandate.