The Federal Open Market Committee - Who are they?
The Federal Open Market Committee (FOMC) is composed of the Board of Governors, which contains seven members, and five Reserve Bank Presidents from the districts. Yes, there are twelve districts, but the FOMC holds five presidents only at any given time. The New York district president is always on the board and each of the other district presidents rotate, serving one year terms.
What do they do?
This team of officials meets eight times per year. They are required by law to meet at least four times, but need have been, since the early 1980s, that eight meetings are needed. If issues arise, they do not hesitate to meet more than eight times throughout the year.
The Reserve Bank President of New York is responsible for presenting information on the financial and foreign exchange markets at each meeting. All of the presidents attend and give their input to the monetary policy discussions, but only four of them, in addition to the New York Reserve Bank President, are permitted to vote on any changes. The goal of these meetings is to consider ways to improve the economy.
After discussing options, the FOMC votes on whether or not to buy or sell government securities in the open market. Purchasing open market securities increase the amount that the Reserve Banks have available to lend, and lowers the federal funds rate. Selling the securities raises the federal funds rate and decreases the amount that the banks are able to lend.
What’s the latest news?
The press release from the latest meeting, from June 28th, stated that they have voted to maintain the current federal funds rate, 5-1/4 percent. It also stated that inflation has shown slight improvements recently, yet still continues to be a concern of the committee. Economic growth for the nation has been moderate for the first half of the year.
Minutes from the meeting state that energy prices have increased the overall inflation for the second quarter. (Everyone is complaining about gas prices, right?) Although core consumer prices are favorable, that is not enough evidence to say we have a stable cap on inflation.
Employment rose at a slower pace than during the first quarter, but is still increasing at a moderate pace. Overall unemployment for the country is at 4.5%. (That’s not bad overall, but there are still some pockets of higher unemployment rates in the country.)
Residential construction activity has declined, which is related to the increase in unsold new home inventory. (If people are not buying the new homes already built, why build too many more?) Single family housing starts have also declined.
Global demand for U.S. exports is high, which is good for us. Considering the fact that the exchange rate for the dollar is weak, overseas sales are beneficial, particularly to Europe. On the other hand, imports pose the risk of destabilizing inflation.
Details of the semi-annual report to Congress on monetary policy and economic outlook were also discussed. (There will be more on that next week!)
The next meeting for the FOMC is in about two weeks, and the press release should be available in a month. I’ll keep you posted!
