ShmoopTube

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

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

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

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

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

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policy discount rates open market operations and bank reserve requirements

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

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

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

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unemployment and inflation and among other things if unemployment is high

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

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

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

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marketplace and hopefully encouraging the cost of renting money or interest

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

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

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

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

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

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

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

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

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

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concept for most people including me to understand here

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

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

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

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

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

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

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

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

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