US Fed Meeting: How Does Powell-Led FOMC Implement The Monetary Policy?— Explained In Five Steps

The US Federal Reserve will unveil its eighth monetary policy decision on Oct. 29. after a a two-day review by the central bank's federal open market committee (FOMC). Wall Street has priced in a quarter-point (25 basis points) interest rate cut which will bring the federal funds rate to a range of 3.75%-4.00% amid moderating inflation despite the tariff risk.

The Federal Open Market Committee, or FOMC, is a 12-person group of Federal Reserve System officials that sets the crucial US monetary policy at meetings held throughout the year. The FOMC's monetary policy actions influence interest rates and credit norms, which impacts financial conditions, including economic productivity along with spending and investment decisions by households, communities, and businesses.

The FOMC makes all decisions regarding the appropriate position or stance of monetary policy to help move the economy toward the congressionally mandated goals of maximum employment as well as the price stability. Here's a simple five-point guide on how the rate-setting panel conducts and implements the monetary policy for the economy:

The Fed sets the stance of monetary policy to influence short-term interest rates and overall financial conditions with the aim of moving the economy toward maximum employment and stable prices. In this way, the Fed's monetary policy decisions affect the financial lives of all Americans.

It is not just the spending decisions that consumers make, but also the spending decisions of businesses: About what they produce, how many workers they employ, and what investments they make in their operations.

Though it specifies the goals for monetary policy, Congress has also provided the Fed operational independence. This flexibility ensures that monetary policy decisions can be directed toward the longer term, be based on data and objective analysis, and best serve the interests of all Americans.

At the same time, the Fed is accountable to Congress and the American people for its actions. It achieves accountability by being transparent about its policy deliberations and actions through a range of communications.

Twice a year, for example, the Fed Chair goes to Capitol Hill to testify before congressional committees on current economic developments as well as the Fed's actions to promote maximum employment and stable prices.

When necessary, the Fed changes the stance of monetary policy by raising or lowering its target range for the federal funds rate, an interest rate for overnight borrowing by banks. These changes affects the spending decisions of households and businesses and have implications for economic activity, employment, and inflation.

Lowering that target range represents an "easing" of monetary policy because it is accompanied by lower short-term interest rates in financial markets and a loosening in broader financial conditions. This may be needed if the economy is sluggish or inflation is too low.

On the other hand, raising the target range represents a "tightening" of the monetary policy, which raises interest rates and may be necessary if the US economy is overheating or inflation is too high.

Teams of economists, analysts, examiners, and other professionals from across the Federal Reserve System continuously gather and analyze data and information from around the US. This information and analysis provides insights on conditions across the US—including at the regional and local level—that are vital to

• Formulating effective monetary policy,

• Assessing the health of the US economy,

• Promoting the stability of our financial system

• Ensuring consumer, community, and business voices are heard at Fed.

The Federal Open Market Committee is the entity that decides on an appropriate monetary policy by setting the target for the federal funds rate. FOMC policymakers rely on a broad range of information in their assessments and deliberations. They analyze the latest economic data and review reports and surveys from consumer, business, and financial market contacts.

The Federal Reserve System includes the Board of Governors, a federal agency located in Washington, D.C., and 12 Federal Reserve Banks around the nation. The 12 Reserve Banks—and their 24 Branches—are the operating arms of the Federal Reserve System. Each Reserve Bank operates within its own particular geographic area, or district, of the United States.