Tuesday, October 24, 2006

Fed Watching: The FOMC Meeting

An understanding of monetary policy in action is essential to developing an understanding of macroeconomics. The powers that be at our central bank (usually called the “Fed”) began a two-day policy meeting today. Today members of a twelve person special committee at the Fed, called the Federal Open Market Committee (FOMC), scrutinized data relating to economic growth and inflation. The FOMC is the principal decision making body of the Fed. The primary function of the FOMC is to direct monetary policy for the U.S. economy. The FOMC has eight regularly scheduled meetings in a given year. The next meeting will be held on December 12.

Tomorrow morning the twelve members of the FOMC will take a vote concerning the direction of short-term interest rates. Shortly after the vote, the FOMC will issue a Statement explaining their action or inaction with regard to interest rates. An army of Fed watchers will then hit the online media giving their spin on what the Fed is thinking about the direction of the macro economy. Not one macroeconomist that I know of expects the Fed to change its interest rate target on Wednesday. Rather the Fed watchers will be dissecting the Press Release for hints of what the Fed will do in the future when the interest rate “pause” is over.

You can find out more about the Fed and monetary policy in Chapter 12 of your text book. If you think that you know a lot about the Fed, try your hand at this Fed quiz.

Extra Credit: I want to be on the FOMC because I want to influence interest rates in the economy. How do I go about it? And who is that guy in the picture? If you are the first student to send me an e-mail (kwoodward@saddleback.edu) with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.

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