Download Federal Open Market Committee

Federal Open Market
Committee
FOMC
Monetary Policy Decisions
Interest rates- rate charged to consumers and
businesses for borrowing money
Money supply- how much money is in circulation
Set Up
 FOMC meets 8x a year
 BOG and 5 of the Federal Reserve Bank Presidents
 NY Federal Reserve Bank President is a permanent member
 Other 4 positions are rotated among FRB Presidents
FOMC Calendar
January
26-27
Statement:
PDF | HTML
Implementation Note
Longer-Run Goals and Policy
Strategy
March
15-16*
Statement:
PDF | HTML
Implementation Note
Press Conference
Projections Materials:
PDF | HTML
April
26-27
Statement:
PDF | HTML
Implementation Note
June
14-15*
July
26-27
September
20-21*
November
1-2
December
13-14*
Minutes: PDF | HTML
(Released February 17, 2016)
Minutes: PDF | HTML
(Released April 6, 2016)
Minutes: PDF | HTML
(Released May 18, 2016)
Goals of the FOMC
 Maximum employment
 Stable prices
 Moderate long term interest rates
Stable Prices
 Undistorted by Inflation
 Tells the Economy- what people need
Better use of labor and resources
 Higher standard of living
 Increase consumer savings and assets
 Increase business investment
Open Market Operations
 Open market operations (OMO) refers to the buying and selling
of government securities in the open market in order to expand
or contract the amount of money in the banking system
 primary tool of the Fed
 Fed’s buys or sells of U.S. government securities
Fed buys bonds
Fed sells bonds
Fed buys bonds
 sellers deposit the proceeds in bank accounts
 banks’ deposits and reserves increase
money to loan,
interest rates drop,
more spending
Fed sells bonds
 buyers pay by taking money out of bank accounts
 banks’ deposits and reserves decrease
 less money in the economy,
 higher interest rates,
 less spending
Key Questions
 What generally happens to interest rates when the Fed sells
securities?
 There will be less money available and interest rates will rise.
 What is the desired effect on interest rates when the Fed purchases
securities?
 Interest rates will decrease, more money will be available, and
spending is encouraged.
 What is the discount rate?
 This is the interest rate the Federal Reserve charges banks if
banks borrow reserves from the Fed itself.
 What is the Reserve Requirement?
 These are the portions of deposits that banks must hold in
reserve. Banks cannot loan out all the money that is deposited in
them.
Inflation Targeting
 Inflation targeting is a monetary policy in which a central bank has an
explicit target inflation rate for the medium term and announces
this inflation target to the public. 1-2%/year is acceptable (desirable?) 3%
Dangerous.
 http://www.investopedia.com/terms/i/inflation_targeting.asp
FOMC- Commentary
 February, 2016
 http://www.bloomberg.com/news/videos/2016-02-18/uncertainty-andconfusion-parsing-the-fomc-minutes
 March, 2016
 https://www.thestreet.com/video/13510889/fed-chairman-yellen-saysfomc-must-proceed-cautiously-on-interest-rates.html
 April, 2016
 http://www.bloomberg.com/news/videos/2016-04-15/fomc-majority-shiftaway-from-inflation-targeting-posen