The Open Market Committee (FOMC) of the Federal Reserve Board meets eight times a year to evaluate the threat of inflation or recession.
Based on its findings, the 12-member FOMC determines whether to change the discount rate or alter the money supply to curb or stimulate economic growth.
For example, the FOMC may raise the discount rate, which the Federal Reserve charges member banks to borrow, with the goal of tightening credit and limiting inflationary growth. It may lower rates to encourage borrowing and economic expansion. Or, it may take no action.
Changes in the discount rate result in virtually immediate changes in the short-term rates that banks charge consumers - and each other - to borrow.
The Federal Reserve Bank of New York implements FOMC decisions to alter the money supply. It buys government securities to put more money into circulation and loosen credit or it sells securities to take money out of the market and tighten credit.
- Browse Related Terms: Adverse Action Notice, Annual Percentage Rate (APR), Credit application, Discount rate, Federal Open Market Committee (FOMC), Finance Charge, interest, Interest rate, Money factor, Origination fee, Periodic interest rate, Prequalification, Prime rate, Regulation Z, Right of rescission, Truth-in-Lending Act