Federal Open Market Committee

The top decision-making body that sets the monetary policy of the U.S. Federal Reserve (Fed), managing inflation and employment through the policy rate and open market operations.

Federal Open Market Committee

Overview

The Federal Open Market Committee (FOMC) is the body within the U.S. Federal Reserve System that makes the final decisions on monetary policy. It sets the target range for the federal funds rate, the policy rate, and pursues the dual mandate of price stability and maximum employment through open market operations, interest on reserve balances, and balance sheet management. As one of the meetings most closely watched by financial markets around the world, the results of its eight regular meetings each year have an immediate impact on global asset markets and capital flows to emerging economies.

Key Details

History and Legal Basis

The FOMC was first established by the Banking Act of 1933 and was reorganized into its current powers and structure through the Banking Act of 1935. In its early years it functioned largely as a consultative body coordinating open market operations, but after World War II, as the wartime policy of pegging bond yields came to an end (the 1951 Fed–Treasury Accord), it established itself as an independent monetary policymaking body. Through the Federal Reserve Reform Act of 1977 and the Humphrey–Hawkins Act of 1978, its objectives — "maximum employment, price stability, and moderate long-term interest rates" — were codified.

Composition

The committee consists of 12 voting members.

All 7 members of the Board of Governors of the Federal Reserve System
The President of the Federal Reserve Bank of New York (a permanent member and Vice Chair)
4 of the remaining 11 Reserve Bank presidents (rotating one-year terms)

The Chair of the Board of Governors also serves as Chair of the FOMC, and by convention the President of the New York Fed serves as Vice Chair. All Reserve Bank presidents, including non-voting members, attend the meetings and take part in discussions but do not have a vote. As of 2026, the Chair is Jerome Powell, whose term is scheduled to end in May 2026.

Policy Tools

The main tools the FOMC decides on directly or leads are as follows.

1. Target range for the federal funds rate: the key policy rate set by the committee.

2. Open market operations: the Open Market Desk at the New York Fed buys and sells Treasury and agency securities to adjust liquidity.

3. Interest on reserve balances (IORB) and the reverse repurchase agreement facility (RRP): administrative tools that keep the policy rate within its target range.

4. Balance sheet policy: managing long-term interest rates and financial conditions through quantitative easing (QE) and quantitative tightening (QT).

5. Forward guidance: communication about the future path of policy.

6. Discount rate: decided by the Board of Governors but adjusted in connection with FOMC discussions.

Meeting Operations

Regular meetings are held eight times a year, usually at intervals of six to seven weeks, at the Fed's headquarters in Washington, D.C. On the first day, members review economic and financial conditions and receive staff briefings; on the second day, they discuss policy options and vote. Immediately after the meeting ends, a policy statement is released, followed by a press conference by the Chair. Three weeks later, the minutes, summarizing the remarks of each voting member, are published and used by the market to infer the policy path. Two weeks before each meeting, the Beige Book, a compilation of economic conditions across the 12 Reserve Banks, is released.

Summary of Economic Projections and the Dot Plot

At the March, June, September, and December meetings, the Summary of Economic Projections (SEP) is released as well. It contains the median projections submitted by members for real GDP growth, the unemployment rate, PCE inflation, and the policy rate. In particular, the dot plot, which marks each member's policy rate projection with a dot, is used as a key indicator by which the market gauges the future path of rate hikes and cuts. However, since the dot plot is non-binding and merely reflects individual members' views, warnings against over-interpretation are constantly raised.

How Decisions Are Made

The FOMC places priority in principle on consensus, but decides by vote when necessary. Dissenting views are publicly recorded in the statement, and a small number of dissents are read by the market as a signal of internal divisions over policy. The minutes describe in relative detail the risks members were concerned about (sticky inflation, an overheating or cooling labor market, financial market vulnerabilities, etc.).

Recent Developments

The easing phase of 2020–2021. In response to the COVID-19 shock, the policy rate was cut to 0–0.25% and unlimited quantitative easing was implemented. At the August 2020 Jackson Hole meeting, the committee adopted average inflation targeting (FAIT), embracing a new framework that "tolerates inflation above 2% for a period of time."

Rapid tightening in 2022–2023. In response to the sharpest inflation surge in 40 years, the committee raised rates 11 times from March 2022 to July 2023, bringing the policy rate up to 5.25–5.50%. This was the highest level since 2001. Quantitative tightening (QT) was carried out in parallel over the same period.

The 2024 pivot. As slowing inflation and signs of a cooling labor market were confirmed, the policy rate fell to 4.25–4.50% through a 50bp cut (a "big cut") in September and 25bp cuts in November and December. The possibility of a soft landing that returns inflation to target came to the fore.

Debate since 2025. Conflicting signals — concerns over a renewed rise in prices driven by tariff increases and supply chain reorganization, and on the other hand slowing employment indicators — widened the gap in views within the committee. Emphasizing a data-dependent approach, the committee shifted to a gradual cutting cycle, and at its October meeting it stated its intention to conclude the reduction of its balance sheet. At the same time, as pressure from the political sphere grew, Fed independence emerged as the biggest issue. The administration's repeated demands for rate cuts, attempts to dismiss a governor and disputes over appointments, and speculation over a change of chair heightened market concerns about the credibility of FOMC decisions and the predictability of policy. Accordingly, the committee has appeared to focus even more on enhancing communication transparency and anchoring long-term inflation expectations.