Implementation Lag

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

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

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

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

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

policy discount rates open market operations and bank reserve requirements

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

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

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

unemployment and inflation and among other things if unemployment is high

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

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

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

marketplace and hopefully encouraging the cost of renting money or interest

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

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

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

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

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

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

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

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

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

concept for most people including me to understand here

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

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

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

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

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

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

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

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