The Federal Reserve and the FOMC

The Federal Reserve is the central bank of the United States. It is charged with making monetary policy and with partially regulating the country's banking sys­tem (Blinder, 1998).

The FOMC is the primary policymaking body of the Federal Reserve. The FOMC consists of twelve members: the seven members of the Federal Reserve Board of Governors; the president of the Federal Reserve Bank of New York, who serves as vice chair; and four of the other eleven Reserve Bank presidents, who serve on an annually rotating basis. All other Reserve Bank presidents at­tend FOMC meetings, presenting reports and participating in discussion, but they cannot vote (Blinder, 1998).

The FOMC holds eight regularly scheduled meetings per year, about once every six weeks. The main purpose of these meetings is to discuss economic and financial conditions in the United States and to make monetary policy decisions. The meetings are highly structured (Abolafia, 2012; Baez and Abolafia, 2002). Every meeting begins with a round of oral reports on the current conditions and future direction of the economy. These reports fall into two categories, those presented by staff and those presented by each committee member and Reserve Bank president.

“House price bubble” mentioned at meetings

grnrraSrd in Googlr ShaS illusSraSrs Shr amounS of Nrdia inSrrrsS in Shr SrrN house price bubble. Onr can srr ShaS NrnSions of Shr SrrN incrrasr draNaSically from 2000 So 2005, Shr prriod of Shr grraSrsS incrrasr in housing pricrs. Housr pricrs prakrd in 2005 and drclinrd Shrrraftrr. Onr can oCsrrvr ShaS inSrrrsS in Shr Sopic in Shr mrdia dropprd in 2006 as Shosr pricrs sSopprd rising. IS rosr again in 2007 and 2008 in Shr wakr of Shr financial crisis. Hrrr, Shr Srrm was NosSly usrd So drscricr hog Shr housr pricr cucclr had cursS.

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The second part of the meeting is devoted to the FOMC's main policy deci­sion: setting the target for the federal funds rate. Committee members discuss whether to raise, lower, or hold constant the federal funds target rate. At the end of that discussion, committee members vote on the policy decision. The result is announced publicly in a press release immediately after the meeting, which states the balance of risks to growth and inflation and notes the reasons for the vote. The FOMC spends a great deal of time crafting the wording of the press re­lease. They know that financial market analysts will read the document carefully in order to try to predict the direction of the economy. If the vote is split, the press release documents the difference of opinion. The FOMC's actions are wide­ly watched by Wall Street and the financial community at large as a harbinger of the future direction of the real economy, inflation, and interest rates. These ac­tions move financial markets in the United States and the world (Holmes, 2014).