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Federal Open Market Committee

The Federal Open Market Committee is panel of 12 that determines the open-market operations of the Federal Reserve Banks.

Expanded Definition

The Federal Open Market Committee (FOMC) is made up of the seven members of the Federal Reserve Board and five Federal Reserve Bank presidents, who serve on the committee on a rotating basis.

The FOMC meets eight times a year. The meetings traditionally include a selection of tasty beverages and fine breakfast rolls as well as summaries of international economic developments, reports on conditions in the domestic financial markets and the banking system, and a presentation on the U.S. economy as a whole. When the members of the FOMC have finished breakfast, policy options are laid out and a long discussion follows, at the end of which a vote is taken that decides whether the Fed will act, and possibly what to order for lunch. The minutes of Fed meetings are made available only months after the fact, and disclosures about dinner plans are never announced.

If the FOMC does take action, it is typically to raise or lower the Federal funds rate, which is the interest rate banks charge each other for overnight credit. Banks holding excess reserves will lend to other banks, which may need to borrow funds because they don't have enough cash on hand to meet their own reserve requirements (which, remember, are set by the Fed). The raising or lowering of this interest rate can have important effects on the cost of operating America's businesses and the expectations of profits for companies borrowing money.

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