FOMC: WHAT IS IT, WHO IS IN IT AND WHAT DOES IT DO

Who is on the FOMC?

The Committee consists of 12 voting members. They include the chairman and six other governors appointed by Congress. It also includes the vice chairman and four presidents of the regional Federal Reserve Banks. The position of vice chairman is permanent, while regional presidents serve on the FOMC for one year on a rotating basis.

Chairman

Jerome H. Powell became chairman of the FOMC and the Fed's Board of Governors on February 5, 2018 for a four-year term that runs until January 31, 2028. He has been a member of the Fed's Board of Governors since May 25, 2012.

Prior to joining the Fed, Powell was a former senior Treasury officer under former President George W. Bush, a visiting scholar at the Bipartisan Policy Center, and a partner at the Carlyle Group from 1997 to 2005. He succeeded Janet Yellen as chair of the Fed.

Vice Chairman

The position of Vice Chairman always goes to the President of the Federal Reserve Bank of New York. Since June 2018, this post has been occupied by San Francisco Fed President John Williams.

Appointed by Congress

The FOMC currently has five congressional appointees. One position is vacant.

Lael Brainard (Committee term: June 16, 2014 to January 31, 2026) was Deputy Secretary of the Treasury Department, Senior Fellow at the Brookings Institution, and Deputy National Economic Adviser to former President Bill Clinton. She was also a professor of economics at the MIT Sloan School of Management.

Richard H. Clarida (September 17, 2018 - January 31, 2022) is Columbia University Professor of Economics and Director of PIMCO. In addition, Dr. Clarida served as Assistant Secretary for Economic Policy at the US Department of the Treasury from February 2002 to May 2003.

Randal Quarles (October 13, 2017 - January 31, 2032) Vice Chairman for Oversight until October 13, 2021. He is also Chairman of the Financial Stability Board. Both positions were created under the Dodd-Frank Wall Street Reform Act to promote financial stability in the wake of the 2008 financial crisis. Prior to taking these positions, he was a managing director at the Cynosure Group and Carlyle Group, and a Treasury Officer under former President George W. Bush.

Michelle Bowman (November 26, 2018 to January 31, 2034) was a Kansas Bank Commissioner, an experience Congress requires at least one board member to have. Before joining the banking industry, Bowman held senior positions at the Department of Homeland Security (DHS) and the Federal Emergency Management Agency (FEMA), and ran a London-based government and public affairs consultancy.

Christopher Waller (December 18, 2020 – January 31, 2030) was Director of Research at the Federal Reserve Bank of St. Louis from June 2009 until his appointment to the Board. He has also been a professor of economics at the University of Notre Dame and the University of Kentucky.

Presidents of regional banks
Four Federal Reserve Bank presidents who will join the FOMC in 2021:

* Mary K. Say, San Francisco

* Thomas Barkin, Richmond

* Raphael Bostick, Atlanta

* Charles Evans, Chicago

Four other Fed bank presidents will become deputies in 2021. They will become members of the FOMC in 2022. It:

* Loretta J. Mester, Cleveland

* Eric Rosengren, Boston

* James "Jim" Bullard, St. Louis

* Esther George, Kansas City

Bank of New York First Vice President Helen Mucciolo is the permanent deputy.

What does the FOMC do?

The FOMC works with the Federal Reserve Board to control four monetary policy instruments: reserve requirements, open market operations, the discount rate, and interest on excess reserves. The FOMC sets a target range for the federal funds rate. at his meetings. The Board sets the discount rate and reserve requirements.

The FOMC uses its tools to achieve maximum employment and stable prices. To do this, he must control unemployment and inflation.

Economic Goals of the Fed

The Fed's inflation target is 2% over time. He wants prices to increase by 2% every year. When this happens, people expect inflation. This motivates them to buy now, not later. Low inflation stimulates demand, which is good for economic growth.

The FOMC no longer has a final target for the natural rate of unemployment. Prior to the 2020 recession, unemployment was historically low, causing no inflation. Instead, the Fed is now looking at a wide range of information rather than relying on a single unemployment target.

How the Fed Conducts Monetary Policy

To bring down the unemployment rate, the FOMC uses an expansionary monetary policy. This stimulates economic growth by increasing the money supply and lowers rates to spur economic growth and reduce unemployment.

If the economy grows too fast, then prices rise, causing inflation. To combat inflation, the FOMC uses a contraction of monetary policy. This makes money more expensive, slowing down the economy. A slowing economy means businesses cannot afford to raise prices without losing customers. They may even lower their prices to attract customers. It fights inflation.

The committee regulates interest rates by setting a target level for the federal funds rate. This is the rate that banks charge each other for overnight loans, called federal funds. Banks use federal funds loans to make sure they have enough cash to meet the Fed's reserve requirement. Banks must keep this reserve overnight at the local Fed bank or cash in their vaults.

While the FOMC sets a target level for the federal funds rate, the banks actually set the rate themselves. The Fed is putting pressure on banks to meet the target through open market operations. The Fed buys securities, usually Treasury bills, from member banks. When the Fed wants the rate to go down, it buys securities from banks. In return, she replenishes their reserves by giving the bank more federal funds than it wants. Banks cut the federal funds rate to lend out this additional reserve.

Conversely, when the Fed wants to raise the rate, it replaces bank reserves with securities. This reduces the amount available for lending, forcing banks to raise rates.

To combat the 2008 financial crisis, the FOMC significantly expanded its use of open market operations. This is called quantitative easing (QE). To achieve its goals, the Fed has purchased vast amounts of Treasury notes and mortgage-backed securities. In March 2020, the Fed resumed QE to fight the recession caused by the global health crisis.

How does the FOMC affect you?

The FOMC influences you through its control of the federal funds rate. Banks use this rate to determine all other interest rates. As a result, the federal funds rate controls the availability of money to invest in homes, businesses, and ultimately your paycheck and investment income. This directly affects the value of your retirement portfolio, the value of your next mortgage, the sale price of your home, and the potential for your next raise.

Pay close attention to FOMC meeting announcements so you can anticipate economic changes and take steps to strengthen your personal finances.

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