FOMC Policy Statement

What Is the Fed? How Does It Respond?

The Federal Reserve, otherwise called the Fed, is the central bank of the United States. It is in charge of setting sound monetary policies which keep employment high and the economy strong.

What Happens at FOMC Meetings?

About like clockwork, its Federal Open Market Committee (FOMC) meets privately to examine the most recent economic data, improvements in financial markets and any steps it plans to take.
Participation goes from the Fed Chair to its Board of Governors to the leaders of the country's 12 federal reserve banks, albeit just the 12 FOMC individuals currently chose can really vote on Fed policy.
Since the FOMC meetings are not public, a great deal of buzz works in anticipation over what could occur. The Fed's official meeting minutes are not delivered until three weeks after its FOMC meetings, yet starting in the year 2000, the Fed started giving a policy statement on the last day of the FOMC meeting to increase transparency.

What Does the Fed Say in Its FOMC Policy Statement?

The Fed has several tools at its disposal to direct the economy. In the event that it needs to slacken the monetary supply, it purchases Treasury securities and consequently increases market liquidity, making it simpler for consumers to do things like take out mortgages and vehicle loans.
On the off chance that the Fed needs to control inflation, it attempts to fix the monetary supply. It does this by raising the fed funds rate, which is the overnight rate banks use to loan to one another. This makes an interpretation of down to consumers as higher prime interest rates.
The FOMC policy statement momentarily frames its current interpretation of the state of the economy and what it is doing in the immediate term. It likewise gives forward-looking guidance through the year's end.
In this manner, the FOMC policy statement is a short statement made after every one of the FOMC meetings, reporting any changes in monetary policy and evaluating the risks the economy is facing.

How Does Fed Control Risk? What Information Might It Give in Its Statement as an Indication?

The Fed is continuously working toward the long-term objectives of price stability and sustainable economic growth. However, assuming interest rates are too high, economic growth might slow, making results like contracting payrolls and rising unemployment. Then again, assuming that interest rates are too low, growth might outperform the economy's true capacity, leading to shortages and rising inflation. The FOMC expects to foster an ideal economic environment by setting interest rates at the right level with flawless timing.
Accordingly, its policy statement might give one of the following appraisals:

1. Current risks are weighted mostly toward conditions that might generate economic weakness in the foreseeable future.
2. Current risks are weighted predominantly toward conditions that might generate elevated inflation pressures in the foreseeable future.
3. Current risks are balanced with respect to possibilities for the two objectives in the foreseeable future.

The principal option puts the markets on notice that the FOMC might see the need to ease monetary policy by lowering interest rates down the road. The second fundamentally says it might see the need to fix policy by increasing interest rates. What's more, the third demonstrates that the committee expects to leave rates where they are.

When Did the Fed Start Releasing Policy Statements?

Prior to February 2000, the FOMC possibly made an announcement after meetings when it either changed monetary policy or essentially altered its outlook. Furthermore, as opposed to expressing its view in terms of the balance of risks to the economy, it stated things enigmatically, in terms of its monetary policy "directive." This directive would contain a bias toward tightening monetary policy, a bias toward easing monetary policy, or no bias by any means.
The FOMC changed its practice on the grounds that the bias language had become conflicting with how monetary policy is led. The bias language dated from when it was not unusual for the committee to make monetary policy moves between scheduled meetings. The bias (or nonattendance thereof) applied explicitly to "the intermeeting period," which was really confounding to comprehend.
As intermeeting policy moves turned into the rare exception, a bias covering the intermeeting period as of now not seemed OK. The FOMC entirely tested by giving no statement, yet even it admitted this practice simply added to vulnerabilities. Utilizing its own jargon, it stated that doing as such "may have strengthened the public spotlight on the chance of a subsequent adjustment to the position of policy, in this manner increasing the possibility of misperceptions about the chances and timing of policy action."
In this way, in January 2000, the committee announced its new policy of expressing its view in terms of the balance of risks. Financial markets cheered over this step to increase transparency and accordingly focus all the more light on what could lie ahead for the economy.