Federal Open Market Committee (FOMC)
Tue, Apr 15The FOMC, or Federal Open Market Committee, is a part of the Federal Reserve System that makes important decisions regarding interest rates and the expansion of the U.S. money supply.
The Federal Reserve System manages three monetary policy tools:
- Open market operations
- Discount rate
- Reserve requirements
The Board of Governors of the Federal Reserve System oversees the discount rate and reserve requirements, while the FOMC is in charge of open market operations.
Open market operations involve the Federal Reserve buying and selling securities in the open market to adjust interest rates by controlling the money supply.
By utilizing these three tools, the Federal Reserve affects the demand for and supply of balances that depository institutions maintain at Federal Reserve Banks, thereby influencing the federal funds rate.
The federal funds rate is the interest rate at which depository institutions lend their balances at the Federal Reserve to one another overnight.
FOMC Structure
The Federal Open Market Committee (FOMC) is composed of twelve members:
- The seven members of the Board of Governors of the Federal Reserve System.
- The president of the Federal Reserve Bank of New York.
- Four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
The rotating positions are filled from the following four groups of Banks, with one Bank president from each group:
- Boston, Philadelphia, and Richmond
- Cleveland and Chicago
- Atlanta, St. Louis, and Dallas
- Minneapolis, Kansas City, and San Francisco
Nonvoting Reserve Bank presidents attend the Committee meetings, engage in discussions, and contribute to the Committee’s evaluation of the economy and policy alternatives.
The FOMC convenes eight regularly scheduled meetings each year. During these meetings, the Committee assesses economic and financial conditions to determine the appropriate monetary policy stance and evaluate risks to its long-term objectives of price stability and sustainable economic growth.
History
The FOMC was established in 1913 when the Federal Reserve Act of 1913 assigned the Fed the responsibility for U.S. monetary policy in response to the significant financial panic and bank runs, particularly during 1907.
Mission
The committee analyzes the nation’s economic and financial conditions and determines the suitable monetary policy, as previously mentioned, through open market operations.
One of the Federal Reserve’s primary objectives is to manage the country’s inflation by setting inflation targets. The committee seeks to achieve this target by establishing a goal for the federal funds rate (the interest that banks charge each other for overnight loans).
Selling government securities to banks reduces the amount of funds they can lend, effectively raising the interest rate. Conversely, purchasing government securities from banks increases their available funds, thereby lowering the interest rate.
Recommendation
F*ck You Money
F*ck You Money is a colloquial term for the amount of money you need to never work another day in your life for “the man.”
Factory Orders
The Factory Orders report serves as an economic indicator that gauges the total volume of new orders received by manufacturers for both durable and non-durable goods. It offers valuable insights into the health of the manufacturing sector, business investment, and anticipated production levels, making it an essential resource for policymakers, traders, and analysts assessing the economy's strength.
Fading
Fading is a trading strategy where a trader believes that a swift upward movement has been exaggerated and takes a short position in anticipation of a potential reversal.
Fakeout
A fakeout refers to a false breakout that happens when the price moves beyond a chart pattern but then quickly returns inside it. This phenomenon is also referred to as a “false breakout” or a “failed break.”
Falkland Islands Pound (FKP)
The Falkland Islands Pound (FKP) serves as the official currency of the Falkland Islands, a British Overseas Territory situated in the South Atlantic Ocean. This currency has been in use since 1833 and is pegged to the British Pound Sterling (GBP) at a one-to-one ratio. The Falkland Islands Government is tasked with the issuance and management of the Falkland Islands Pound.
Falling Knife
The term “falling knife,” also referred to as “catching a falling knife,” describes the act of purchasing an asset that is experiencing a rapid decline in price.
