Cash News
Ever wonder why mortgage rates fluctuate or why saving for a big purchase sometimes feels harder than it should? You can thank, at least in part, a group of policymakers known as the Federal Open Market Committee (or FOMC for short).
While this committee’s activities might seem distant and technical, their decisions affect everything from the cost of borrowing, the value of your savings, and even the stability of your job.
Here’s a closer look at what the FOMC does, why, and how it impacts your finances.
What is the Federal Open Market Committee?
The Federal Open Market Committee is a key component of the Federal Reserve System, made up of a group of people who help to set monetary policy for the United States.
The FOMC’s primary focus is to manage the nation’s money supply and influence interest rates, aiming to promote maximum employment, stable prices, and moderate long-term interest rates.
Who are the Federal Open Market Committee members?
The Federal Open Market Committee members consist of 12 people who make decisions that significantly affect your financial life and help make policy for the Federal Reserve.
Of these 12 members, they all have different roles:
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Seven are members of the Board of Governors of the Federal Reserve System. These members are appointed by the president of the United States and are confirmed by the Senate. Each governor serves a 14-year term, which is staggered so that one term expires every two years.
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One FOMC member is the president of the Federal Reserve Bank of New York. This person is the Fed’s chair and is nominated by the president and confirmed by the Senate. The chair is often seen as one of the most influential economic policymakers in the world.
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Four members come from the Federal Reserve Bank of New York. These four members serve one-year terms on a rotating basis with other Reserve Bank presidents. However, all Reserve Bank presidents attend FOMC meetings, even when they are not designated voting members.
2024 Committee Members
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Jerome H. Powell, Board of Governors, Chair
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John C. Williams, New York, Vice Chair
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Thomas I. Barkin, Richmond
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Michael S. Barr, Board of Governors
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Raphael W. Bostic, Atlanta
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Michelle W. Bowman, Board of Governors
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Lisa D. Cook, Board of Governors
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Mary C. Daly, San Francisco
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Beth M. Hammack, Cleveland
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Philip N. Jefferson, Board of Governors
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Adriana D. Kugler, Board of Governors
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Christopher J. Waller, Board of Governors
Alternate Members
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Susan M. Collins, Boston
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Austan D. Goolsbee, Chicago
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Alberto G. Musalem, St. Louis
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Jeffrey R. Schmid, Kansas City
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Sushmita Shukla, First Vice President, New York
Read more: How much control does the president have over the Fed and interest rates?
Overview of the FOMC’s primary duties
The FOMC primarily assists with setting monetary policy by conducting open market operations (OMOs), which involves the buying and selling of government securities (such as U.S. Treasury bonds) to influence the money supply and interest rates in the economy.
The committee also decides on what the federal funds rate should be. That’s the interest rate at which banks lend to each other overnight, which influences overall borrowing costs and, by extension, economic activity and inflation.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Finally, the FOMC regularly releases its economic outlook, which includes projections on inflation, unemployment, and GDP growth, helping to guide expectations for future monetary policy.
The FOMC meets eight times a year, usually at the Board Room at the Eccles Building in Washington, D.C. The topics the FOMC discusses include:
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The outlook for the American economy
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The outlook for foreign economies
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The outlook for regions in America; the Reserve Bank presidents in particular will talk about conditions in their districts, as well as discuss their views on the national economy.
How the FOMC’s actions impact you
The FOMC makes numerous impactful decisions, but what tends to get the most attention is if and when it will adjust the federal funds rate.
When the Fed increases its target rate, the interest rates on loans and credit cards also go up. In other words, it becomes more expensive to borrow money. But rising interest rates aren’t all bad — it also means you’ll ultimately earn higher rates on your deposit accounts, including high-yield savings accounts and certificates of deposit (CDs).
Read more: Should you open a savings account or CD before the Fed’s next meeting?
The FOMC’s actions influence your cost of living as well. When interest rates are low, there is more money circulating in the economy, which can drive up inflation. As goods and services become more expensive, it reduces the purchasing power of your money. On the other hand, raising interest rates can help to slow inflation, which helps stabilize prices but could also stunt economic growth.
These policy decisions also have a ripple effect through the economy, influencing (albeit less directly) job stability, stock market returns, home prices, and more.
Frequently asked questions
What is the difference between the Fed and the FOMC?
The Fed is short for the Federal Reserve System, and it’s the central bank of the United States. The FOMC is a committee within the Fed.
How does the FOMC affect the market?
In theory, decisions by the FOMC don’t affect the stock market. In reality, however, the FOMC influences the market all the time. Investors often buy or sell stocks based on what they believe the FOMC will do with interest rates; when it costs less to borrow money, companies can then borrow more and invest in their businesses, which often leads to more profits in the long run. So investors (usually) like to see interest rates lowered, or at least remain unchanged.
How many times a year does the FOMC meet?
The FOMC schedules eight meetings a year. These meetings happen about every six weeks, though the committee can hold additional meetings to respond to urgent economic matters, if necessary.