Thursday, December 2, 2021

FOMC Q&A

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Ruey L.
Full time trader, part time poker player.

  1. What is the FOMC?

FOMC stands for Federal Open Market Committee, a branch of the Federal Reserve System

  1. Who is on the committee?
    – President of the Federal Reserve Bank of New York
    – 7 members of the Board of Governors
    – 4 Reserve Bank Presidents on a rotating basis

  2. Why do they meet?
    The members meet to discuss national and global economic developments and their stance on monetary policies

  3. When are the meetings held?
    FOMC meets 8 times per year, every 6 weeks. They can meet more often should the need arises.

  4. Can we spectate the meeting?
    FOMC meetings are held in private. However, the minutes will be released after the meetings

  5. What are their tools?
    – Open Market Operations
    – Adjusting discount rates
    – Determining reserve requirements
  1. How can those tools be used?

For expansionary monetary policies;

Open Market Operations
Buying more bonds in the open markets

Discount Rate
Lowering the rate when lending money to commercial banks

Reserve Requirements
Decreasing the amount of money that financial institutions have to keep at the reserve bank

(The opposite is true for contractionary monetary policies)

All of the above actions will lead to more money flowing into the economy and thus stimulate economic activities

  1. Precautions

FOMC meetings are among the most highly-anticipated events since the financial implications are widespread. Thus, market volatility usually increases around these times.

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