Federal Open Market Committee (FOMC)
The Federal Open Market Committee (FOMC) is the policy-making body of the Federal Reserve System, the central banking system of the United States. The FOMC is responsible for setting the nation’s monetary policy, which includes setting the target for the federal funds rate, the interest rate at which banks lend to each other overnight. The FOMC also sets the discount rate, which is the interest rate at which banks borrow from the Federal Reserve. The FOMC is composed of 12 members, including the seven members of the Board of Governors of the Federal Reserve System and five of the 12 Federal Reserve Bank presidents.
History of the FOMC
The FOMC was established by the Federal Reserve Act of 1913, which created the Federal Reserve System. The FOMC was initially composed of the seven members of the Board of Governors and five of the 12 Federal Reserve Bank presidents. The FOMC was given the authority to set the discount rate and the federal funds rate. In 1935, the FOMC was given the authority to set reserve requirements, which are the amount of funds that banks must hold in reserve against deposits.
The FOMC has evolved over the years. In 1951, the FOMC was given the authority to set the target for the federal funds rate. In 1975, the FOMC was given the authority to set the discount rate. In 1977, the FOMC was given the authority to set reserve requirements. In 1979, the FOMC was given the authority to set the target for the federal funds rate.
Comparison Table
| FOMC Authority | Discount Rate | Federal Funds Rate | Reserve Requirements |
|---|---|---|---|
| 1913 | No | Yes | No |
| 1935 | Yes | Yes | Yes |
| 1951 | No | Yes | No |
| 1975 | Yes | Yes | No |
| 1977 | No | Yes | Yes |
| 1979 | No | Yes | No |
Summary
The Federal Open Market Committee (FOMC) is the policy-making body of the Federal Reserve System, the central banking system of the United States. The FOMC is responsible for setting the nation’s monetary policy, which includes setting the target for the federal funds rate, the interest rate at which banks lend to each other overnight, and the discount rate, which is the interest rate at which banks borrow from the Federal Reserve. The FOMC was established by the Federal Reserve Act of 1913 and has evolved over the years, gaining additional authority to set reserve requirements in 1977. For more information about the FOMC, visit the Federal Reserve System’s website at https://www.federalreserve.gov/monetarypolicy/fomc.htm.
See Also
- Federal Reserve System
- Federal Funds Rate
- Discount Rate
- Reserve Requirements
- Monetary Policy
- Interest Rates
- Inflation
- Unemployment
- Gross Domestic Product
- Balance of Payments
