The FOMC Directs Open Market Operations

1.3.1 The Federal Reserve Board’s Impact on Business Activity and Market Stability

The FOMC Directs Open Market Operations

12 members. 8 meetings a year. The Fed's own page: responsible for open market operations. NOT the Board of Governors acting alone.

The trick

Common trap: The Board of Governors alone runs open market operations. Correct: The FOMC does: the Fed's own page says so directly. The committee, not the Board alone.

The trick

Common trap: The FOMC sets every rate the Fed has. Correct: The FOMC owns open market operations. Different rate, different body. Name the owner.

Now answer

3 questions on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

Which body writes Regulation T, governing credit extended by brokers and dealers?

A. The Board of Governors of the Federal Reserve B. FINRA. FINRA enforces margin rules built on Regulation T but does not write the regulation itself. C. The SEC. The SEC oversees securities markets broadly, but Regulation T specifically is a Federal Reserve Board regulation. D. The FOMC. The FOMC directs open market operations, a separate monetary-policy tool from the Board's own regulation-writing.

How sure are you?

Sure Fairly sure Guessing

Correct: A. Regulation T, 12 CFR 220, is written by the Board of Governors of the Federal Reserve.

B. FINRA enforces margin rules built on Regulation T but does not write the regulation itself.

C. The SEC oversees securities markets broadly, but Regulation T specifically is a Federal Reserve Board regulation.

D. The FOMC directs open market operations, a separate monetary-policy tool from the Board's own regulation-writing.

Unit: SIE outline 1.3.1

Question 2Exam level

What is the reserve requirement?

A. An interest rate charged to banks that borrow from the Fed B. The fraction of a bank's deposits it must hold back rather than lend out C. The rate banks charge each other for overnight loans D. A rate set by Congress on savings accounts

How sure are you?

Sure Fairly sure Guessing

Correct: B. The reserve requirement is the fraction of deposits a bank must hold back rather than lend, set by the Board of Governors.

A. That describes the discount rate, a different tool entirely.

C. That describes the federal funds rate.

D. Congress plays no role in setting it; the Board of Governors does, and it is not a savings-account rate.

Unit: SIE outline 1.3.1

Question 3Above the exam

A report says "the Federal Reserve cut rates today." Two days later, a separate report says "Congress passed a bill increasing federal spending on infrastructure to boost growth." Are both of these the same kind of policy?

A. Yes, both are monetary policy, since both aim to boost the economy. Collapses two different owners into one because both actions share a similar economic goal. B. No; the first is monetary policy, the Fed and its federal funds rate target, and the second is fiscal policy, Congress and spending C. Yes, both are fiscal policy, since both involve government action. Wrongly assigns the Fed's own rate action to Congress. D. No; the first is fiscal and the second is monetary. Reverses both assignments; the Fed's action is monetary, Congress's is fiscal.

How sure are you?

Sure Fairly sure Guessing

Correct: B. "The Fed cut rates" is monetary policy, the Federal Reserve's own lever; "Congress passed a spending bill" is fiscal policy, Congress and the Treasury's lever. Sharing the goal of boosting the economy does not make them the same lever.

A. Collapses two different owners into one because both actions share a similar economic goal.

C. Wrongly assigns the Fed's own rate action to Congress.

D. Reverses both assignments; the Fed's action is monetary, Congress's is fiscal.

Unit: SIE outline 1.3.1

In Depth Pass