Federal Open Market Committee (FOMC) Definition

The Federal Open Market Committee is a part of the U.S. Federal Reserve that sets the direction of monetary policy, mainly by guiding open market operations and the target for the federal funds rate. Its decisions influence borrowing costs across the economy.

Who sits on it

The committee has 12 voting members: the seven governors of the Federal Reserve Board, the president of the New York Fed, and four of the remaining eleven regional Fed presidents who vote on a yearly rotation. The Fed Chair also chairs the FOMC. This setup is meant to mix national and regional perspectives.

What the FOMC decides

At its core, the FOMC sets the target range for the federal funds rate and directs open market operations. These choices steer short-term interest rates and financial conditions that ripple out to mortgages, business loans, and currency markets.

How policy gets implemented

When the committee changes its stance, the New York Fed’s trading desk carries out the plan by buying or selling government securities in the market through the System Open Market Account. These trades add or drain reserves so that the fed funds rate stays near the FOMC’s target range.

Meetings and communications

The FOMC holds eight regularly scheduled meetings each year and can meet more often if conditions warrant. After meetings, it releases a policy statement and later publishes minutes. Four times a year, it also shares the Summary of Economic Projections, which includes members’ economic forecasts and each participant’s rate outlook in the so-called dot plot.

Goals the FOMC pursues

The committee aims to promote maximum employment and stable prices, along with moderate long-term interest rates. In practice, it uses its tools to cool the economy when inflation runs hot or to support growth when activity weakens. Over the long run, the Fed frames stable prices around a 2 percent inflation goal.

Tools the FOMC relies on

The main lever is setting the target range for the federal funds rate and directing open market operations to keep market rates near that range. It also uses forward guidance to shape expectations, and it manages the size and composition of the Fed’s securities holdings to affect broader financial conditions. Other interest-rate tools and the discount rate are part of the wider toolkit managed with the Board of Governors.

Why markets care

Rate decisions and policy signals change liquidity, influence the U.S. dollar, and shift investors’ appetite for risk. Stocks, bonds, and foreign exchange often move sharply around FOMC days because the statement and the press conference update the outlook for growth and inflation.

Relevance to cryptocurrency markets

Crypto tends to react to the same liquidity and risk channels as other risk assets. Higher policy rates usually mean tighter financial conditions and a stronger dollar, which can weigh on Bitcoin and altcoins. An easier policy can have the opposite effect by boosting liquidity and risk-taking. Traders often watch the meeting timetable and guidance to position for potential volatility.

Legal basis and scope

The committee’s authority to conduct open market operations comes from the Federal Reserve Act, with later laws refining how policy is implemented. While the Board of Governors sets items like the discount rate and reserve requirements, the FOMC specifically directs securities purchases and sales that manage the money supply.