Although it is often described as the nation’s “central bank,” the United States Federal Reserve is actually made up of a number of them. Each responsible for overseeing lending in a specific part of the country, the various banks of the Federal Reserve System contribute in their own unique ways to the country’s monetary policy. Although some of their activities are entirely uncoordinated and spontaneous, many of the most important outcomes are decided upon collectively. With a range of individual committees that are tasked with overseeing certain aspects of the overall system’s operation, the Federal Reserve system actually determines national monetary policy.
Probably the single most significant and best known of these groups is the Federal Reserve Open Market Committee. As its name suggests, the Open Market Committee dictates overall Federal Reserve policy with regard to the private markets that the central bank interacts with and oversees. Most importantly, the Open Market Committee sets interest rates that are assigned to lending the Federal Reserve conducts with private banks on a short-term basis.
At a typical fed fomc meeting, talk about where these rates should go will therefore often take center stage. In the modern era, control over these overnight lending rates has been one of the Federal Reserve’s most powerful and frequently employed tools for setting the direction of the national economy. With the United States being such an important player on the world’s economic stage, this also means that the influence of the Open Market Committee’s activities extend well beyond the national borders.
The Open Market Committee meets a number of times every year, with a statutory requirement ensuring that it keeps up to date with changing economic conditions. During the most challenging economic times, the Committee will often meet even more frequently, so as to be better able to react as conditions evolve and merit new responses. The members of the committee typically have strong backgrounds in either academic economics or real-world banking, with a healthy mixture of these two basic perspectives being preferred. Given the great influence and momentousness of the Committee’s decisions, the comments and feelings of its individual members are often the subject of great interest from outsiders, as well.