The
Federal Open Market
Committee (FOMC),
under the leadership of the Fed chairman, decides whether to increase,
decrease, or make no change in the money supply at each of its
regularly scheduled meetings.
To come to its decision, the committee discusses
what Fed research reveals about the current state of the economy
and its future prospects in each of the 12 bank districts and
in the country as a whole.
12 of the 19 members of the committee vote:
the Fed chairman and the other 6 governors, the president of the
New York Federal Reserve Bank, and 4 additional district bank
presidents who serve rotating terms. In fact, though, the vote
is often unanimous. When there’s disagreement, the chairman
is always on the winning side.
Following each meeting, the FOMC issues what’s
known as a risk statement, indicating if it thinks that
inflation
or economic weakness pose a potential threat to the economy. It
may also conclude the risks seem balanced.
That risk statement is generally interpreted
as an indication of the action the FOMC is likely to take in the
near future — if not at its next meeting, then at the one
following. For example, if the statement says the risks seem weighted
toward inflation, the likelihood is that the committee will act
to tighten the money supply.
