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Finance: What is the Federal Open Market Committee (FOMC)? 15 Views
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The Federal Open Market Committee's purpose is to manage financial outcomes through monetary policy.
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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]
Full Transcript
- 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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