Monetary Policy

Monetary Policy

The primary role of the Federal Reserve System, the nation's central bank, is to realize national economic goals through monetary policy actions that influence the availability and cost of money and credit in the economy.

The Federal Open Market Committee (FOMC) is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments. The FOMC consists of the seven members of the Board of Governors of the Federal Reserve System and five Federal Reserve Bank presidents, all of whom have studied the economy in their district states and are voting members of the committee on a rotating basis. The FOMC holds eight regularly scheduled meetings during the year and other meetings as needed, and meetings are attended by all Federal Reserve Bank presidents and designated staff of the Board of Governors.

Instruments of Monetary Policy

Open Market Operations

The purchases and sales of U.S. Treasury and federal agency securities—are the Federal Reserve's principal tool for implementing monetary policy.

Discount Window

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility—the discount window.

Reserve Requirements

Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Within limits specified by law, the Board of Governors has sole authority over changes in reserve requirements. Depository institutions must hold reserves in the form of vault cash or deposits with Federal Reserve Banks.