Federal Open Market Committee (FOMC) and Monetary Policy Analysis

This report provides an analysis of the Federal Open Market Committee (FOMC) and its role in monetary policy. It examines the FOMC's structure, including its members and meeting frequency. The report delves into the FOMC's statements, highlighting its assessment of inflation, the labor market, and economic activity. It also reviews the FOMC's decisions on interest rates and its outlook on future economic conditions. The report further explores the minutes of FOMC meetings, discussing financial stability, monetary policy tools, and the Chairman's testimony. It also references the Beige Book report, summarizing economic activities. Finally, it addresses factors affecting the balances of reserves, offering a comprehensive overview of the FOMC's functions and impact on monetary policy. This assignment, available on Desklib, offers valuable insights for students studying economics and finance.

WEB FED ASSSIGNMENT
FED WATCH: Monetary Policy Analysis
The part and parcel of monetary policy is FOMC or Federal Open Market Committee. It
comprises of twelve people from the Board of Governors of the Federal Reserve and Reserve
Bank’s five Presidents. There are 8 meetings of the committee that are held annually, and if
required, additional meetings are held.
FOMC: Federal Open Market Committee
The information shows that the person who is the permanent member of the committee is the
President of The New York Reserve Bank, and he remains permanent all through. Chicago and
Cleveland changes alternatively and the three rotating Presidents are from Philadelphia, Dallas,
and Minneapolis. The voting rights are enjoyed by Cleveland, New York, St. Louis, Boston and
Kansas City.
The FOMC Statement
The statement of FOMC showed that the rate of inflation was steady, and it was less than 2%
which was their target. There was slowness in the labor market as more people continued to get
engaged in the economic activities. There was a decline in the level of unemployment and the
job gains. The level of inflation was such because the energy and the non-energy import prices
declined. On observing this, the Committee pushed for price stability and gaining maximum
employment. The committee believed that if the labor markets are strengthened, with the
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adjustment of monetary policies, then the economic activity is expanded, feeding the labor
market.
The information is deduced, and it is decided by the committee to maintain one-fourth to half of
the percent of the rate of funds.
The economic conditions will be assessed by the Committee so that the size and the time of
adjustment of the rate of reserve can be determined. Other information will be considered for
improvements in the finances, the condition of the market of labor and the inflation pressures.
For restoring the margin of inflation to 2%, the developments will be monitored by the
committee for reaching the goal of inflation.
Meeting Minutes of FOMC
In the recent discussion, there was a discussion about the financial stability and the monetary
policies. A presentation was made in which the differences in the two subjects were highlighted,
and it was shown that how the monetary policies react to the financial imbalances. There was a
note drafted that mentioned the ability of financial markets to take the shocks as a result of the
strong economic policies that were implemented at the time of financial crisis. It was also
discovered by the Committee that the use of monetary policies might not be very beneficial and
may be outweighed by the cost of deviating from the price stability, which is the usual method.
There were discussions on the matter of financial markets and OMO. The information came to
the Committee from the System Open Market Account manager about the developments of the
financial markets. Then there were other reports too that informed about the OMO that was
carried out since March'15-March'16.
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Policy tools
The Federal Reserve Rates that were targeted were predicted to be between 0.25% to 0.50%, and
the actual were 0.38%. When the Committee voted, it had no intention of increasing the rate
which was set. There has not been very much difference in the discount rate over the years. The
reserve ratio highlighted in the Federal Reserve Board regulation is applied to the Reserves
liabilities to get the dollar amount of Reserve requirement. Current reserve figures stand at, 3%
for liabilities between 15.2 million to 110.2 million dollars and 10% for liabilities with a figure
over 110.2 million dollars.
Chairman Testimony
It was pointed out by the Chairman that price stability was required, and it should be included in
the agenda of the Committee. It also said that for gaining maximum employment, there is a
requirement of moderate long-term rate of interest. The main components of business costs
include labor costs and the prices of energy, and other raw materials are also considered in this.
Beige Book Report
It was mentioned in the reports that the economic activities grew steadily from July to August.
Retail activity particularly grew, and it varied in terms of strength of growth. There was a rise in
the markets of real estate and all the districts improved their home prices, along with sales and
prices of house construction.
The reports concluded that there was an increase in the retail spending within the districts of
New York and San Francisco that reported better sales.
Resolving the factors that affected the balances of Reserves
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It can be seen from the information that there are many activities in which FED is involved. The
agreements on reverse repurchases declined and dropped to almost half of the figures. This
shows that not much of the securities were sold by FED for a higher price in the future which it
was trying to reduce. Therefore, this increased the funds in Reserve Bank as the money from it
got absorbed.
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References:
FRB: Monetary Policy. (2016). Federalreserve.gov. Retrieved 27 June 2016, from
http://www.federalreserve.gov/monetarypolicy/default.htm
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