Which of the following is the major monetary policy making body of the U.S. Federal Reserve System?
O A. The eight members
B. FOMC C. U.S. Congress
OD. FRB bank presidents
E. OCC 1 points Save Answer
The Correct Answer and Explanation is:
The correct answer is:
B. FOMC (Federal Open Market Committee)
Explanation
The Federal Open Market Committee (FOMC) is the major monetary policy-making body of the U.S. Federal Reserve System. It is responsible for overseeing the nation’s open market operations, which involve the buying and selling of government securities. These operations are the primary tool used to influence the money supply, interest rates, and overall economic activity in the U.S.
The FOMC consists of 12 members:
- The seven members of the Board of Governors of the Federal Reserve System, appointed by the President and confirmed by the Senate.
- The President of the Federal Reserve Bank of New York, who serves continuously due to the bank’s critical role in open market operations.
- Four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
The committee meets regularly, typically eight times a year, but can meet more often if necessary. At each meeting, the FOMC assesses current economic conditions, including employment, inflation, and GDP growth. Based on this analysis, the committee makes decisions about adjusting the federal funds rate and engaging in open market operations to meet its dual mandate: maximum employment and stable prices.
The decisions made by the FOMC directly affect short-term interest rates and indirectly influence long-term rates, currency exchange rates, and ultimately the overall level of spending and investment in the economy.
Let’s briefly examine the incorrect choices:
- A. The eight members – This is vague and does not refer to any official policymaking body.
- C. U.S. Congress – Congress oversees the Fed’s structure and mandates but does not conduct monetary policy.
- D. FRB bank presidents – Only five of the twelve presidents vote at a time, and they do so within the FOMC.
- E. OCC (Office of the Comptroller of the Currency) – This is a separate federal agency that regulates and supervises national banks, not a monetary policy body.
Thus, the FOMC is the correct and most accurate answer.
