Federal Open Market Committee (FOMC)

What the FOMC Is

The Federal Open Market Committee (FOMC) is the Federal Reserve’s body that directs open market operations to implement U.S. monetary policy. Its actions influence short‑term interest rates, the money supply, and broader financial conditions to promote healthy economic growth.

Composition

• 12 voting members:
• Seven members of the Board of Governors.
• The president of the Federal Reserve Bank of New York (permanent member).
• Four Reserve Bank presidents serving one‑year terms on a rotating basis from the remaining 11 regional Reserve Banks.
• The FOMC chair is also the chair of the Board of Governors; the New York Fed executes open market transactions on behalf of the system.
• Regional rotation ensures geographic representation across the 12 Federal Reserve districts.

Meetings and Decision Process

• The FOMC holds eight regularly scheduled meetings per year and can meet more often if conditions require.
• Meetings are deliberative: participants review domestic and global financial conditions and economic forecasts, then discuss policy options.
• Policy decisions typically direct open market operations—buying or selling government securities—to achieve a desired stance for the federal funds rate and broader monetary conditions.
• Minutes and policy statements are released after meetings to inform markets.

Primary Tools and Operations

• Open Market Operations (OMOs): The FOMC’s principal tool. Buying securities adds reserves to the banking system (easing policy); selling securities drains reserves (tightening policy).
• Federal funds rate: OMOs and other tools influence the federal funds rate—the overnight interbank lending rate—which in turn affects other short‑term rates and, indirectly, long‑term rates.
• Discount rate and reserve requirements: Set by the Board of Governors (not the FOMC), these tools also affect liquidity and the cost of borrowing for depository institutions.

System Open Market Account (SOMA)

• Securities purchased via OMOs are held in the System Open Market Account (SOMA), which has domestic and foreign portfolios.
• The domestic portfolio contains U.S. Treasuries and federal agency securities; the foreign portfolio holds select foreign currency‑denominated assets.
• The Federal Reserve Bank of New York’s trading desk conducts market transactions to implement FOMC mandates communicated to the SOMA manager.

Policy Goals and Strategy

• The FOMC operates under a statutory mandate to promote maximum employment, stable prices, and moderate long‑term interest rates.
• The committee has stated a longer‑run inflation goal—commonly a 2% target for price stability—and uses its policy tools to pursue that objective alongside employment goals.

Economic Effects

• By changing the supply of reserves and the federal funds rate, the FOMC influences:
• Short‑term and longer‑term interest rates
• Credit availability and borrowing costs
• Investment, employment, and overall economic output
• Exchange rates and international capital flows

Frequently Asked Questions

• Is the FOMC the same as the Federal Reserve?
• No. The FOMC is a committee within the Federal Reserve System focused on open market operations and monetary policy implementation.
• How often does the FOMC meet?
• Eight scheduled meetings per year, with additional meetings as needed.
• Who executes open market trades?
• The Federal Reserve Bank of New York conducts trades on behalf of the FOMC’s SOMA.

Bottom Line

The FOMC is the Federal Reserve committee that sets the operational stance of U.S. monetary policy through open market operations. Its decisions shape the federal funds rate and, by extension, influence borrowing costs, financial conditions, and the broader economy to achieve the Fed’s employment and inflation objectives.