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Finance Dictionary and Glossary of Investment Terms
Federal Open Market Committee
Definition 1.
FOMC. A 12-member committee which sets credit and interest rate policies for the Federal Reserve System. This committee consists of 7 members of the Board of Governors, and 5 of the 12 Federal Reserve Bank Presidents. This group, headed by the Chairman of the Federal Reserve Board, sets interest rates either directly (by changing the discount rate) or through the use of open market operations (by buying and selling government securities which affects the federal funds rate). The discount rate is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The Fed actually controls this rate directly, but it tends to have little impact on the activities of banks because these funds are available elsewhere. This rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board. The federal funds rate is the interest rate at which banks loan excess reserves to each other. While the Fed can't directly affect this rate, it effectively controls it through the way it buys and sells Treasuries to banks. There are 8 scheduled FOMC meetings during the course of each year. However, when circumstances dictate, the Fed can make inter-meeting rate changes.
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Definition 2.
The panel that decides whether to raise interest rates, tighten or loosen the money supply, etc. The committee, whose actions are anticipated and scrutinized around the world, consists of the seven members of the Federal Reserve Board plus four rotating presidents of regional Federal Reserve Banks and the president of the New York Fed. FOMC actions can have a huge influence on interest rates here and abroad, the rate of economic growth, the cost of borrowing for businesses and consumers, and the direction of stocks and bonds.
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