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What is the Federal Open Market Committee?

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  • Written By: Jason C. Chavis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 May 2018
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The Federal Open Market Committee is the branch of the federal government responsible for overseeing monetary policy in regards to the open market operations in the United States. As part of the Federal Reserve System, it controls the short-term interest rate and thereby the amount of liquid money in use throughout the U.S. economic system. This means that the Federal Open Market Committee is essentially in charge of the overall supply of money in the country.

One of the major duties of the organization is to address concerns about the federal funds rate by purchasing and selling government securities such as treasury bonds. This assists the Federal Open Market Committee in controlling the exchange rates between the central bank and other financial institutions throughout the U.S. and abroad. It also has the ability to control inflation by adjusting various rates in the financial sector and limiting the access to money.

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Although not officially a branch of the U.S. government itself, the Federal Open Market Committee was established as part of the Federal Reserve System through legislation of the Banking Act of 1933. Initially, it did not have actual voting rights to adjust prime rate and sustain open market operations, however, in 1935, the federal government amended this fact. The current structure of 12 members was formulated in 1942 to balance the power between the board and the banks. Today, seven of the members come from the Federal Reserve Board, while five are appointed from Federal Reserve Banks. Most notably, the Federal Reserve Bank of New York is always represented, while the remaining seats rotate between the other banks.

The Federal Open Market Committee is mandated by law to meet in Washington, D.C. four times each year. Despite its legal obligations, the Committee actually meets eight times per year, roughly every five to eight weeks. Emergency and special meetings also occasionally occur either in Washington or via phone. Members can vote by proxy on policy changes without actually being in attendance.

At every meeting, the members are given information about important financial changes in the market. The Committee discusses what changes need to be made, how to approach interest rates and factors affecting prices and wages. After the discussion, the group must come to some form of consensus about its actions. This can occur via vote or simply overall agreement. Initially, the Federal Reserve Bank of New York is in charge of adjusting policy, followed by the remaining banks.

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