The Federal Open Market Committee or FOMC is a branch of the Federal Reserve Board, who is responsible for determining which direction the monetary policy will take. The FOMC is governed by the board of governors, which is composed of seven members and five Reserve Bank presidents. Among all the presidents that govern the FOMC, it is the president of the Federal Reserve Bank of New York who continuously serves, while the remaining presidents of the other reserve banks undergo rotation of service after a year.
The operations of the FOMC such as the adjustment of discount rates and setting requirements for banks reserves provides the Federal Reserve the tools it needs to increase or decrease money supply. It is the Federal Reserve’s Board of Governors who is tasked with setting the discount rate and reserve requirements, while the FOMC is tasked with opening market operations that involve the buying and selling of government securities.
Each year the FOMC has eight regularly scheduled meetings, but they can increase the number of meetings should the need arise. The meetings themselves are a secret and are a cause much speculation for those in Wall Street and have analyst continuously guessing whether or not the Feds will tighten or loosen the money supply. This guessing causes interest rates to rise or fall.
Securities that are bought by the FOMC are being held in the Fed’s System Open Market Account or SOMA. These securities consist of both domestic and foreign portfolios. A domestic portfolio is comprised of the United States Treasuries and Federal Agency securities, while the latter portfolio has investments that are denominated in Euros and Japanese Yen. These securities can be held on to by the FOMC until they reach maturity or they can be sold should they see it fit, which is granted by both the Federal Reserve Act of 1913 and Monetary Control Act of 1980.