Rural Dictionary

Federal Open Market Committee

(ECONOMICS) the administrative committee of the Federal Reserve System that actually administers monetary policy. There are 12 members of the FOMC.

The 12 members include all seven governors of the Federal Reserve Board (FRB).

In addition, representatives of each Federal Reserve Bank are eligible to serve on the FOMC. The FOMC implements sales/purchases of treasury securities (open market operations) in order to create credit at member banks. This is the process by which banks with FRS membership can create money. The difficulty of open market operations lies in ensuring that rates for short term securities remain lower than those for long term securities. Otherwise, monetary tightening cannot succeed in curbing inflation.

The Federal Reserve Bank of New York (2nd FRB) is by far the most important of the 12 district banks. Historically, its president has often gone on to become either chairman of the Federal Reserve Board, or else Secretary of the Treasury (as, for example, Treasury Secretary Timothy Geithner). Nearly all bank holding companies have subsidiaries in the 2nd District, and the 2nd District is uniquely guaranteed a seat on the FOMC. The other 11 rotate, with 4 taking a turn of the FOMC at any given time.

The Federal Open Market Committee conducts transactions in treasury securities at the Open Market Window.

by Abu Yahya May 5, 2010

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