Question

What are the main goals of the FOMC? How do they try to achieve those goals? What are open market operations? How do Fed actions effect consumers actions?

Answer 1

FOMC - Federal Open Market Committee.

The main goals of FOMC are

1) Managing interest rate and hence the borrowing rate and lending rate of the US economy.
2) Interest rate targeting - Interest rate decisions are done keeping in mind credit uptake or downfall in the economy
3) The FOMC is basically a committee comprising of individual who study many parameters and give their specific decision on the interest rate direction. The majority is chosen as the voice of the US Fed in terms of the interest rate decision.
4) FOMC takes key decisions about the interest rate and also the money supply in the US economy.

The FOMC tries to achieve those goals by essentially creating a consensus among all the present members of the committee. The committee members take into consideration all the factors like, investment scenario, consumer prices, inflation, Real estate market dynamics, employment, production, foreign exchange, fiscal policy etc. to take a decision on the interest rate. The final interest rate then decides the money supply in the economy.

Open Market Operations are basically carried out by the central bank through buying and selling of government securities. This is done with the motive of infusing or contracting liquidity in the banking system. i.e. If the central bank is selling government securities it wants to reduce the liquidity in the banking system and vice versa for buying of government securities from banks.

Fed actions affect the consumer in terms of the borrowing and lending rates for their loans. Also companies get affected due to the fed interest rates and ultimately it shows up on the final product price which the customer has to pay.