The Federal Reserve is the central banking institution responsible for almost all the monetary policies enacted by the United States of America’s government. It can manipulate and shape the economy in a way that is beneficial to most people, and it does so by influencing either one of three of its most important tools, namely open market regulations and mechanisms, discount rates, and lending rates for banks, and bank reserve requirements.
Using the power, the Federal Reserve has overall banking institutions, it can easily affect the latter two factors, but regulating the open market requires more intensive monitoring and real-time responsiveness for damage mitigation.
The history of the FOMC
Hence, the FOMC, or the Federal Open Market Committee, was established as a subsidiary of the Federal Reserve and is responsible for influencing the supply, demand, and balance of depositories and other tradable instruments in the open market in real-time in the late 1970s. It has considerable autonomy and is free to do as it sees fit on matters concerning the open market.
With the meteoric rise of the stock market, commodities markets, and bonds as investments and investments in general, the FOMC has attained a more central role as opposed to the time of its inception.
The FOMC can enact laws and regulations that affect short-term interest rates, credit rates and credit amount, forex rates, and even commodity pricing variations. These can compound and eventually lead to long-term changes in employment rates, gross domestic product (consider this definition of the GDP if you want to learn more), productivity in general, and inflation rates and prices of goods.
The Federal Open Market Committee is made up of twelve individual members, of which seven are from the Board of Governors, which is another Federal Reserve body involved with the different Reserve Banks. Four out of the twelve Reserve Bank chairmen rotate their position every year, and the Chairman of the New York Federal Reserve.
The members of the Federal Reserve that are not on the FOMC are still allowed to present their assessment of the decisions undertaken by the FOMC. Even if they are non-voting, their opinions may very well be vetoed by the actual voting members of the FOMC.
The FOMC works within 8 scheduled meetings every year and assesses macroeconomic and microeconomic changes within the time gap between every meeting, and comes up with policies or regulations that would help repudiate problems if any. They review their previous policy enactments and their impact on the economy, assess current financial conditions and the economic climate of the world, and hence determine accurate economic stances in economic policy, which would reflect the Federal Reserve’s dual mandate of stabilizing prices and maximizing employment.
The beige book of the FOMC
The FOMC meetings end with the compilation of a national Beige book, which is a compendium of all Reserve Bank Beige books, which is an anecdotal assessment of the economic conditions prevailing in those banking areas of the countries and provides statistical information on the indicators and metrics of the economy’s health.
An overall annual Beige book is also compiled out of the eight national Beige books that come out of all 8 of the FOMC meetings every year and are supposed to provide insight into the banking structure and economic policy of the United States of America.