The Federal Open Market Committee (FOMC) is the monetary policy-making branch of the Federal Reserve, the US central bank. It is responsible for managing the supply and cost of money and credit in the economy, aiming for inflation at a rate of 2%, maximum employment and economic growth.
Its key role is deciding whether interest rates will go up, down or remain stable. It does this by setting a target range for the federal funds rate, which is the rate at which banks lend to each other. Changes to this rate can affect other interest rates, increasing or decreasing borrowing costs for consumers and businesses.
After interest rates, the main monetary policy tool that the FOMC uses is the buying and selling of government bonds on the open market, which is known as quantitative easing.
The FOMC holds eight scheduled private meetings throughout the calendar year, with others being arranged as and when needed. During these meetings, members of the committee will vote on monetary policy. The FOMC is made up of 12 members. This consists of seven members of the Board of Governors, plus the president of the Federal Reserve Bank of New York and four regional Federal Reserve Bank presidents on an annual rotational basis.
The FOMC was created in the Banking Act of 1935, during the Great Depression, to ensure a national strategy rather than a series of independent regional monetary policies.