You’ve probably heard the term FOMC and its meetings. They conjured images of secretive meetings deep underground in dimly lit rooms. But I must admit my imagination is getting a little out of hand. Let’s talk about FOMC meetings, what they are, and how they affect us.
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FOMC Meetings Explained
FOMC stands for The Federal Open Market Committee. The FOMC makes or sets the Federal Reserve Systems monetary policy. If you’ve traded for any period, you’ve experienced how their meetings affect the market.
FOMC days can be a sideways day waiting for the meeting. During the meeting, depending on the topic of discussion, the market can swing up or down. Trading during that can cause a world of hurt directionally.
The U.S. Federal Reserve is not Federal and is not a Reserve. Are you scratching your head yet?
FOMC Meetings Takeaway
- Stands for The Federal Open Market Committee
- meets eight times per year
- sets monetary policy to control and manipulate the money supply
- Uses tools such as interest rates, Treasury bonds, and reserves to
- Their objective is to maximize employment and stabilize prices
What Does Monetary Policy Stand For?
Whether in our daily lives at home, work, or play, we all (mainly) strive for stability. Stability provides predictability, whether in the form of our relationships, steady paychecks, or the warm feeling of meeting your friends for your weekly pick-up hockey game.
Predictability allows us to thrive, enabling us to be productive, contributing members of society. Gainfully employed, we readily spend money to sustain our lifestyles, contributing to our nation’s GDP.
Ultimately, countries strive for economic stability. The steps taken to get there are governed by a set of rules outlined in the country’s rule book, a.k.a monetary policy.
Who Determines Monetary Policy?
Their central bank.
In a nutshell, monetary policy is a country’s central bank’s steps to control the money supply. Their ultimate goal for doing so is to ensure economic stability. One way the central bankers or policymakers do this is by manipulating money circulation. By manipulating the money supply, they can increase employment and the GDP. They accomplish this using interest rates, reserves, bonds, etc.
Who Makes up the FOMC?
These 12 people sound powerful, and they are. They set the rules as the monetary policymaking body of the Federal Reserve System. Of the 12 members, seven are members of the Board of Governors, and five are Reserve Bank presidents.
The Board chair serves as the Chair of the FOMC, whereas the Vice Chair of the Committee is the Federal Reserve Bank of New York president. What is interesting about the Vice Chair’s role is that they are a permanent member of the Committee. Finally, the remaining four voting positions on the FOMC are Presidents of other Reserve Banks. However, these positions are filled on a rotating basis.
Who can attend FOMC meetings? Whether you are a voting member, all Reserve Bank presidents attend FOMC meetings, participate in discussions, and assess the economy and policy options.
Click here to see the current list of FOMC members.
How Often Do FOMC Meetings Take Place?
FOMC meetings occur once every six weeks or about eight times a year. In addition, depending on what’s going on, the Committee may hold unscheduled meetings to review economic and financial developments. After each regularly scheduled meeting, the FOMC issues a policy statement. In this statement, you’ll find a summary of the Committee’s economic outlook and any policy decisions made at that meeting.
Following each FOMC meeting, The Chairman holds a press briefing. During the briefing, they discuss the FOMC’s policy decisions and provide the context for those decisions.
In addition, minutes are published three weeks after each regular meeting. Furthermore, complete transcripts of FOMC meetings are published five years after the meeting.
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Tools to Stabilize the Economy
Did you know that the Federal Reserve is legally obligated to utilize monetary policy to maximize employment and stabilize prices? The most common way to do so is via—interest rates.
By law, the Federal Reserve conducts monetary policy for two main macroeconomic goals: maximum employment and price stability. Usually, the quickest way they do this is by adjusting short-term interest rates.
They also use treasure bonds as a stabilizing tool. Since 2008, the FOMC has used the large-scale purchase of Treasury securities to lower longer-term interest rates. But, again, the hope is to improve financial conditions and support economic recovery.
When Good Times Get out of Control
We are on the downhill trajectory of a wild upward market ride. Over the last few years, we’ve seen practically free money, wild borrowing, a frenzy of buying, and commodities prices soaring.
So far, I’ve only focused on one part of monetary policy, contractionary. However, there’s an evil twin: expansionary policy. There comes a time when good times must end. Have you heard of the dirty term inflation? If not, you’ve most certainly felt it burning a hole in your pocketbook. To temper inflation, the Fed pulls out one of its most potent tools: manipulating interest rates.
Raising Interest Rates & Inflation
Raising interest rates helps reduce overall demand levels to reduce the upward pressure on prices. By making money more expensive, the Fed’s rate moves work relatively quickly to temper demand as it pushes up all borrowing costs. As a result, longer-term and short-term borrowing costs on everything from your mortgage to your auto loan are impacted.
The Federal Reserve raised interest rates again, adding to the sharpest series of hikes since the 1980s. So far, the Fed has increased rates by three points this year, and Chair Jerome Powell says there’s more to come.
Final Thoughts
I don’t necessarily agree that the Fed is a good steward of money. They created this mess through the wanton printing of money and out-of-control stimulus packages. As a result, our wealth is being eroded, and we must look at new ways to preserve it. There is a better time to dive into this. However, I highly encourage you to check out the book Why Gold? Why Now? The War Against Your Wealth and How To Win It by E.B. Tucker.
Buy the book, research the Fed following the FOMC meetings, and see for yourself.
