Scott Rothbort
The Federal Open Market Committee is a 12-member institution, which is responsible for monetary policy. The FOMC is composed of the seven-member Board of Governors plus five other Federal Reserve district presidents. One of these five "at-large" members must be the president of the New York Fed. The other four members are selected from among the other district presidents on a rotating basis to serve one-year terms.
The FOMC determines its own leadership. Traditionally, the chairman of the Fed Board of Governors is elected as FOMC chairman, and the New York Fed president is the vice chairman. 3. Key Rates That the Fed Controls There are two important interest benchmark rates that the Fed controls: the discount rate and the federal funds rate. Discount Rate. The discount rate is often referred to as the Fed's "primary rate." That is the interest rate charged on loans made by the Federal Reserve banks to commercial banks, such as Citibank(C Quote - Cramer on C - Stock Picks) and Bank of America (BAC Quote - Cramer on BAC - Stock Picks), and other depository institutions (like certain governmental and quasigovernmental agencies). To get this "discount" from the Fed, these big borrowers must be financially sound and maintain sufficient capital
.
It's important to keep an eye on the discount rate because it will either provide or remove liquidity to or from banks for further lending activity downstream in the commercial and consumer credit system.
Federal Funds Rate. This is the interest rate at which depository institutions can lend to one another via the Federal Reserve on an overnight basis. The FOMC will establish this fed funds rate as a target through open-market operations .
The federal funds rate tends to be the key rate at which consumer-lending rates such as "prime rates " are targeted.
RSS
