The Federal Open Market Committee represents 12 board members,
typically meeting eight times a year to discuss and vote on the new monetary
policy for the Federal Reserve Board. The summary of the meeting is released
to the press a few days following the next scheduled meeting. FOMC monetary
policy objectives are "to seek monetary and financial conditions that will
foster price stability and promote a resumption of sustainable growth." In
regards to price stability, the FOMC believes that over long periods of time
it can influence the inflation rate. This is closely related to money growth.
Unfortunately, the theory is incomplete since what constitutes a long period
of time is not exact.
Further, the theory gives no indication of what happens with short but intense bursts of money growth- though monetary policy actions do have a material impact on output growth for the next few quarters. The FOMC also has an acute concern for the daily goings on of the U.S. economy. For either position, the FOMC can direct the movement of interest rates and change bank reserves by adjusting the federal funds rate. (Reserves are traded among banks on a daily basis in the federal funds market.) These open market operations are carried out by the Fed Bank of New York. The FED can increase (decrease) the federal funds rate by decreasing (increasing) the supply of reserves. Increases in total reserves, increases the money stock and decreases in the Fed fund rate are called easing. Tight policy would involve movements of these variables in opposite directions.