Tuesday, October 5, 2010

Federal Reserve Open Market Committee (FOMC)

As we get closer to the next meeting of the FOMC, on Nov 2-3, anticipation will be evident everywhere as the wait for their announcement describing the form of quantitative easing (QE) ends. The form it takes is possibly less important than if there will be another round of QE. Since it is widely anticipated already, there will likely be a negative reaction if the FOMC does not make some definitive statement of their intentions for using QE and the measures that convinced them to take that path. In the process of assembling this post, the structure of the Fed and the FOMC emerged and adds to the understanding of this integral organization. The next page is mostly information from the Federal Reserves web site, briefly describing the FOMC makeup and terms. Also, there are links to recent talks given by Fed Governors or Branch Presidents. In addition, there is a message regarding their personal opinion on QE being utilized again, taken from the talk linked by their name. Finally, there is a summary of the members current public position on QE, at the meeting in September when a vote was taken, and in the talks some have given since then.


Structure of the FOMC
The Federal Open Market Committee (FOMC) consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options.
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
For more detail on the FOMC and monetary policy, see section 2 of the brochure on the structure of the Federal Reserve System and chapter 2 of Purposes & Functions of the Federal Reserve System.

2010 Members of the FOMC
  • Members

  • "Should further action prove necessary, policy options are available to provide additional stimulus. Any deployment of these options requires a careful comparison of benefit and cost. However, the Committee will certainly use its tools as needed to maintain price stability--avoiding excessive inflation or further disinflation--and to promote the continuation of the economic recovery."

  • "We have tools that can provide additional stimulus at costs that do not appear to be prohibitive. Thus, I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long."

  • "The experience in the U.K. seems to suggest that appropriately state-contingent purchases of Treasury securities are a good tool to use when inflation and inflation expectations are “too low.” Bullard concludes that the U.S. quantitative easing program may be the best tool to avoid the low nominal interest rate, deflationary outcome."

  • "While the economy is growing, it is currently growing too slowly to significantly reduce the unemployment rate or stem disinflationary pressures created by the high degree of slack in the economy.  While fiscal policies may be the most effective way to stimulate the economy when short-term interest rates approach the zero bound, unconventional monetary policies provide additional policy options."

  • Alternate Members

  • "So, in the coming weeks and months, as I assess the incoming data, update my forecast and deliberate on the best monetary policy approach, I will be pondering two key issues: How much more should monetary policy do to reduce the shortfalls in meeting our dual mandate responsibilities for employment and price stability; and what tools should we use?"

  • "My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them." 

  • "Were deflationary expectations to materialize — and let me repeat, I do not see much risk of this — I would support appropriate steps to raise expectations of inflation, including, perhaps, aggressive asset purchases coupled with clear communication that our goal is to combat deflationary expectations. But for such a strategy to be successful, the public must believe that the Fed can and will act to combat those expectations. The Fed must be credible. Protecting that credibility is why, based on my current outlook, I do not support further asset purchases of any size at this time. As I said earlier, asset purchases in our current economic environment can do little if anything to speed up the return to full employment."

 At the September FOMC meeting, the message to provide "additional accomodation if needed" and maintain the current accomodation program was voted on. The following members voted in favor of the message: Ben bernanke, William Dudley, James Bullard, Elizabeth Duke, Sandra Pianalto, Eric Rosengren, Daniel Tarullo, and Kevin Warsh. Voting against was Thomas Hoenig.

The blogger, Calculated Risk, made this observation after the September 21 FOMC meeting in the article titled FOMC Statement: "Prepared to provide additional accommodation ". It includes the way members voted then. Finally, here is a link to the whole FOMC statement ... Sept 21 FOMC statement.
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