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The twelve-member body of the United States Federal Reserve tasked with setting monetary policy is known as the Federal Open Market Committee, or simply “FOMC.” Following the rise in July, the FOMC decided to raise interest rates by 75 basis points, or 0.75%, in its most recent meeting, which concluded yesterday. Some may ask how the overall economy would be impacted by the U.S. central bank’s ongoing hikes in interest rates in an effort to control inflation. Let’s examine the FOMC’s policymaking process and how market outcomes are affected by it:
What is Monetary Policy?
In this scenario, the Federal Reserve’s actions to “move the needle” in terms of the cost and availability of cash and credit are referred to as monetary policy. The Federal Reserve of the United States uses three major instruments to implement monetary policy: the discount rate, bank reserve requirements, and open market operations (OMO); the last is entirely under the control of the Federal Open Market Committee.