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FEDERAL RESERVE IN THE USA: MONETORY POLICY COMMITTEE

INTRODUCTION

The Federal Reserve Act of 1913 gave the Federal Reserve the responsibility of setting up monetary policy. Monetary policy decisions are made and executed as influenced by law and custom by primarily institutions described as monetary commissions (Van De Merwe and Mollentze, 2014). More particularly, within the Federal Reserve System is a commission known as the Federal Open Market Committee (FOMC) that responsible to make the monetary policy and all other inherent decisions that will infer on whether the Federal Reserve joins the Treasury Department in Foreign Exchange (Federal Reserve System Bank of New York, 2014).

The FOMC is mandated to make key decisions regarding the conduct of open market operations, including amongst others the purchases and sales of U.S. government and federal agency securities, which have an effect on the provision of reserves to depository institutions and, in turn, the cost and availability of money including credit in the U.S. economy. The FOMC also directs System operations in foreign currencies (The Federal Reserve Board, 2011).

THE COMPOSITION OF THE FOMC

The Federal Open Market Committee (FOMC) consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options (Board of Governors of the Federal Reserve System, 2014).

The FOMC holds eight...