So far in previous posts we have discussed how some of the basics of monetary policy including, what factors into the decisions, how the federal reserve system is structured, where their economic research comes from, amongst others. Now, with the power to influence the U.S. dollar (the physical paper ones literally say “Federal Reserve Note” on the front), one would hope that they at least meet on a regular basis to reevaluate and fine tune their policy. It is those meetings themselves that are the current topic of discussion as they are how monetary policy decisions are made, at least formally.
Meetings
The Board of Governors and the Presidents of the Reserve banks hold eight regularly scheduled meetings every year where they discuss the condition of the United States economy and financial system as well as possible monetary policy actions to respond to those conditions. Keep in mind that the FOMC consists of the Board of Governors, the President of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve bank presidents. The seven Reserve bank presidents do not sit on the current FOMC can still attend the meetings; they just are not able to vote on this specific committee at this time. More about how this works can be found (HERE).
As alluded to above, the purpose of these meetings is to assess the state of the U.S. economy and its near- and medium-term future. As with anything policy related, truly long-term effects (decades down the road) are rarely considered. The participants of the meeting consult their consumer and various industry contacts as well as the research collected by the Reserve banks in order to understand multiple perspectives of current economic and financial conditions. After the briefing of research, the FOMC discusses their views on the current policy and proposes changes. These policy changes can be something general like balance-sheet policy (i.e., Quantitative easing/tightening) or more specific like placing a per-counterparty limit on reverse repo transactions of $160 billion per-day (something decided at the January 25-26, 2022, meeting).
A final point on the FOMC meetings themselves The FOMC meetings are different from the meetings of the Board of Governors, which happen every other Monday. The Board meetings are open to the public under the Government in the Sunshine Act, however, some of the meetings may be closed to the public if ordered by the Board of Governors due to matters that fall under an exemption of 9(A)(i) of the Government in the Sunshine Act. This exemption is for when it is deemed that it is not in the public’s interest to open the meeting.
Reports and statements
Along with all of these meetings, the FOMC produces multiple types of statements and reports throughout the year. Particular to the FOMC meetings, the FOMC provides a statement that summarizes any policy decisions as well as information regarding the relevant factors the FOMC will consider in future policy decisions as the economy evolves. This statement with regards to the FOMC meetings themselves is typically where you see the most “Forward Guidance” from the Fed. To recall, forward guidance is information about the FOMC’s intentions for the future. For more on forward guidance and how the Fed uses psychology to influence the economy and consumer behavior, Jeff Snider and Emil Kalinowski produced a great Eurodollar University podcast about this very topic.
One thing to note for those who have not followed monetary policy and the federal reserve for over a decade (myself included), the press conference held immediately after the FOMC meeting did not come into existence until 2011. Since then, the Chair of the FOMC presents an opening statement to the media and then proceeds to take questions. This gives the chair the opportunity to clarify the FOMC’s rationale in their policy decisions as well as how those decisions are intended to affect their dual mandate of maximum employment and price stability.
After conclusion of the meeting and the press conference, the detailed minutes of the meetings are published after three weeks from the meeting’s date. In addition to the normal procedures for the FOMC meetings, sometimes the FOMC will also issue statements providing additional information on specific topics if deemed important or relevant at the time.
With regards to other reports and statements, the Fed now publishes a summary of the economic projections proposed by individual FOMC members four times a year. This publication is known as the Summary of Economic Projections (rather self-explanatory title) and can be found on the Fed’s website. Furthermore, an annual report is published by the Fed in order to comply with the Freedom of Information Act (FOIA) as well as other publications including The Beige Book (published eight times a year with anecdotal information on the current economic conditions from each regional Reserve bank), The Monetary Policy Report, and the Federal Reserve Balance Sheet Developments. The latter two should be self-explanatory.
Finally, it would be deemed unwise to forget that the Fed chair testifies twice each year before the two congressional committee’s that oversee the Fed. This testimony is in front of the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services where the content of the testimony is on current economic developments and monetary policy (aka The Monetary Policy Report).
Final Words
The more I have been researching into monetary policy and how the global financial system works, the more fascinating it becomes, at least for me. If you follow the mainstream point of view that the Fed has a lot of power when it comes to money then you tend to take them for their word, or at least believe that their word has some merit in the future of the economy and financial system. However, a contradictory point of view, one touted by Jeff Snider and Emil Kalinowski (the podcast linked above), is that the Fed does not “do money” and their influence on economic conditions and money is simply a matter of psychology and their other tools (i.e., Fed Funds rate) do not have nearly the influence the mainstream believes it does. As the saying goes, the devil is in the details. There is a significant degree of nuance that is required to understand the fundamentals of the global monetary system. It is in the search for that nuance that we find true understanding, and in order to do that, we must understand all point of views.
To your wealth and future,
James Forsythe
For more on Monetary Policy
https://jamesdforsythe.com/role-and-importance-of-monetary-policy/
https://jamesdforsythe.com/how-monetary-policy-affects-consumer-spending-and-its-factors/
