FOMC

The Federal Open Market Committee (FOMC) is the 12-member body within the Federal Reserve that sets the target for the federal funds rate and directs open market operations at eight regularly scheduled meetings each year.

Who sits on the FOMC and what it decides

According to the Federal Reserve, the committee consists of twelve members: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The other seven presidents attend every meeting and take part in the discussion but do not vote. The FOMC holds eight regularly scheduled meetings per year. At each one it reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable growth. The FOMC is responsible for open market operations, which the Fed defines as the purchase and sale of securities in the open market by a central bank and calls a key tool in implementing monetary policy.

The Fed's structure page frames the task as steering toward maximum employment and price stability. See Federal Reserve.

How traders read an FOMC meeting

Each scheduled meeting ends with a written statement announcing the target range for the federal funds rate, followed by a press conference from the Chair. Four meetings a year also publish a Summary of Economic Projections, including the "dot plot" of where each participant expects the policy rate to be at the end of coming years. Markets price the most likely decision well in advance, so the surprise usually comes from the statement's wording, the projections or the Chair's tone rather than the rate itself. A statement describing inflation as more persistent than expected can push short-term Treasury yields up even when the rate is unchanged; language pointing to slower growth can push them down. Because every asset is discounted against the short-term rate, these shifts ripple into bond prices, the dollar and equity valuations within minutes.

Hypothetical example: futures price a 90% chance of a 25 basis point cut. The FOMC cuts but projects fewer cuts next year than assumed, so two-year Treasury yields rise. See quantitative easing.