The Federal Reserve banking system of the United States is both complex and fairly simple to understand, once broken down appropriately. The most important thing to realize from the beginning is that the system is not, as is sometimes thought, composed of a single, central bank. Instead, it includes twelve distinct regional banks, each presiding over banking and lending in a particular, legally defined part of the United States. For coordinating national monetary and financial policy, though, the leaders of those individual banks meet regularly to discuss things and make group decisions.
To do so, they organize themselves into some committees; each tasked with overseeing a particular type of financial or banking activity. Some committees oversee the regulations that dictate how banks in various parts of the country are required to capitalize and arrange for audits while others deal with issues like consumer protection. The single most widely reported-upon group of this kind is that known as the Open Market Committee, and it attracts such interest for good reasons.
Uniquely among all the Fed’s other committees, the FOMC is charged with setting policies that govern how the central bank interacts with private markets. The nation’s twelve Federal Reserve Banks do quite a bit of lending to private banks, serving as a key way to make access to quick cash easier or more expensive to acquire.
The single most important means of doing so is by setting the rate that is applied to overnight lending, whether between banks or by the associated Federal Reserve Bank when a local member bank seeks a loan. That rate influences just about every other variable interest rate throughout the financial system, so it is important that it be set at a level that will account for the current economic conditions.
In order to make sure that this happens, the Open Market Committee is required, by law, to meet a number of times every year. The fomc meeting schedule is normally laid down quite some time in advance, with the committee members typically wanting to get together more often during tough or uncertain economic times. Because of the importance of the Committee’s activities, many investors and others keep up with this schedule with great interest.