Market Analysis

The Federal Open Market Committee (FOMC) sets monetary policy for the United States' central bank. As a branch of the Federal Reserve System, its mission is to encourage maximum employment while providing you with stable prices and moderate interest rates throughout time.

The FOMC employs monetary policy to control the supply of money and credit. It publishes its conclusions during a committee meeting eight times a year, justifying its actions by remarking on how well the economy is performing, particularly inflation and unemployment.

Who Is on the FOMC?

The FOMC is comprised of 12 voting members. They include the chairperson and six additional governors nominated by Congress. It also includes the vice-chair and four regional Federal Reserve Bank presidents. The vice-chair post is permanent, whereas regional presidents serve on the FOMC for one-year terms that rotate.

Chair

On February 5, 2018, Jerome H. Powell began his four-year term as chairman of the FOMC and the Federal Reserve Board of Governors. He was appointed for a second term ending on January 31, 2028. He has been a Federal Reserve board member since May 25, 2012.

Powell was a senior Treasury official under previous President George H.W. Bush before joining the Fed. He served as a visiting scholar at the Bipartisan Policy Center and a partner with the Carlyle Group from 1997 until 2005. He succeeded Janet Yellen as Fed head.

Vice Chair

The vice chairmanship is always assigned to the president of the Federal Reserve Bank of New York. Former San Francisco Federal Reserve President John Williams has held the position since June 2018.

Congressional Appointees

Richard H. Clarida, who served as a governor from September 17, 2018, until January 31, 2022, stepped down from his position on January 14, 2022. He has a background in economics, having been a professor at Columbia University and holding a director position at PIMCO. Additionally, he served as the assistant secretary of the U.S. Department of the Treasury for Economic Policy from February 2002 to May 2003.

Randal Quarles, who was a governor from October 13, 2017, until January 31, 2032, resigned at the end of December 2021. Quarles previously held the position of Vice-Chair for Supervision until October 13, 2021, and chaired the Financial Stability Board, both roles established by the Dodd-Frank Wall Street Reform Act to bolster financial stability post the 2008 financial crisis.

Lael Brainard, a governor from June 16, 2014, to January 31, 2026, had various roles, including Under Secretary of the Treasury Department, senior member of the Brookings Institution, and Deputy National Economic Advisor to former President Bill Clinton. She also served as a professor of economics at M.I.T.'s Sloan School of Management.

Michelle Bowman, who has been a governor since November 26, 2018, until January 31, 2034, brings experience as the State of Kansas bank commissioner, a requirement by Congress for at least one board member. Bowman previously held senior positions in the Department of Homeland Security (DHS) and the Federal Emergency Management Agency (FEMA), and also led a government and public affairs consultancy based in London.

Christopher Waller, serving as a governor from December 18, 2020, until January 31, 2030, was previously the director of research at the Federal Reserve Bank of St. Louis since June 2009. Additionally, he held positions as an economics professor at the University of Notre Dame and the University of Kentucky.

What Does the FOMC Do?

The FOMC collaborates with the Federal Reserve Board of Governors to oversee the four monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on excess reserves. The FOMC meets eight times a year to set a target range for the fed funds rate. The Board determines the discount rate and reserve requirements.

The Fed's Target for Inflation Rate

The Federal Reserve's long-term inflation target is 2%.12 On August 27, 2022, the Fed stated that it would tolerate inflation beyond 2% if it had been consistently below 2%.13

However, in 2022, with Russia's invasion of Ukraine (resulting in significant increases in oil and gasoline prices) and the continuation of strong economic growth as a result of the post-pandemic economic boom, the Federal Reserve Bank began to raise interest rates to counter the rise in US inflation.

The Fed's Target for Unemployment Rate

The FOMC no longer has a specific aim for the natural rate of unemployment. Prior to the 2020 crisis, unemployment was historically low without triggering inflation. Instead of focusing solely on a single unemployment rate target, the Fed considers a wide range of data.

How the Fed Implements Monetary Policy

The Federal Open Market Committee (FOMC) employs different monetary policies to address economic conditions. To reduce unemployment and stimulate economic growth, it adopts an expansionary monetary policy by increasing the money supply and lowering interest rates. This encourages borrowing and spending, thus boosting economic activity.

However, if the economy grows too quickly, it can lead to inflation. In such cases, the FOMC implements a contractionary monetary policy, making borrowing more expensive to slow down economic growth. This helps prevent prices from rising too rapidly.

The FOMC influences interest rates by setting a target for the federal funds rate, which is the rate at which banks lend to each other overnight. Banks use these loans to meet their reserve requirements, which are the funds they must keep on hand at the Federal Reserve or in cash. During times of crisis, such as in March 2020, the Board of Governors may adjust reserve requirements to provide additional support to the economy.

Although the FOMC sets the target for the federal funds rate, banks ultimately determine the actual rate. The Fed influences banks' lending rates through open market operations, where it buys or sells securities, such as Treasury notes, to affect the supply of reserves in the banking system. For example, when the Fed wants to lower interest rates, it buys securities from banks, increasing their reserves and encouraging them to lend more.

During the 2008 financial crisis and the COVID-19 pandemic, the FOMC utilized quantitative easing (QE) as an unconventional monetary policy tool. QE involves large-scale purchases of securities to inject liquidity into the financial system and lower long-term interest rates. This helps support economic recovery during times of economic distress.

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