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Finance: What is the Federal Open Market Committee (FOMC)? 15 Views


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Description:

The Federal Open Market Committee's purpose is to manage financial outcomes through monetary policy.

Language:
English Language

Transcript

00:00

finance a la shmoop what is the Federal Open Market Committee... FOMC! come say it

00:09

with me FOMC yeah that's the noise of meatball makes when it hits the floor it [Meatball lands on the floor]

00:13

also happens to be the acronym for the Federal Open Market Committee and part

00:18

of its purpose in life is to manage financial outcomes through monetary

00:22

policy all right well the Federal Reserve pulls three levers of monetary [3 Levers appear]

00:26

policy discount rates open market operations and bank reserve requirements

00:31

those are the big three the big three monetary policies used to try and [Monetary policies appear]

00:35

control the economy well the font is responsible for the open market

00:40

operations part of that equation it tries to fight the twin evils of [Person pulls open market lever]

00:44

unemployment and inflation and among other things if unemployment is high

00:48

well in general the FOMC will seek to increase the supply of money by holding

00:53

back on sales of government paper like t-bills bonds notes and all that good

00:57

stuff leaving more cash sloshing around in the [Dollar bills appear]

01:00

marketplace and hopefully encouraging the cost of renting money or interest

01:04

rates to decline like encouraging people to borrow because rates are cheap well

01:08

when people can borrow more cheaply yes they're incentivized to spend more at [Person picks up stack of cash]

01:12

the mall on earrings and rings for other places well it works in the opposite

01:16

direction as well with the FOMC fearing inflation while they'll issue

01:20

lots of government paper sucking out the excess cash that was previously in the [Money supply meter declines]

01:25

marketplace and likely causing interest rates to rise right so cash will be less

01:30

available and people want more to rent their precious dollars as interest got

01:35

it okay well the key issue remains that the FOMC is making money more expensive

01:39

when it does that when an issues paper sucking cash out of the system it's hard

01:43

concept for most people including me to understand here

01:46

well the FOMC called eight secret very dan Brown like meetings a year to look [Months of year appear on calendar]

01:50

through reams of data and decide what policy should be note that they're

01:55

applying monetary policy here to do their bidding not fiscal policy the gist

02:00

is that the committee is the one sitting atop monetary policy in the US and it's

02:04

the committee who makes the decisions on the big three dials they can turn one [Committee standing by 3 dials]

02:08

two and three they can sift through data on the economy jobs inflation bang

02:13

fear surveys etc and then make decisions about what to do or you know what not to

02:19

do I remember that Soup Nazi from Seinfeld no bonds for you [Nazi holding a bond]

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