The Federal Open Market Committee in Action
The monetary policy process--how monetary policy gets put together--is not simply a reflection of the economic circumstances surrounding decisions, both domestic and international, and how policy should react to those circumstances. It is also, and importantly so, a reflection of the leadership in the Federal Reserve System, in particular the chairman of the Federal Reserve Board, and of the perspectives of the policy participant--both the Federal Reserve Board Members and the various Reserve Bank presidents.
Before plunging into my subject, "The Federal Open Market Committee in Action," I will describe what goes on in the very large, ornate Board Room at the Federal Reserve Board in Washington, a room complete with huge marble fireplace (albeit cracked), overhanging chandelier, and an impressive Board table (more impressive in my day than today!).
I want to emphasize that the process begins long before the assembly in the Board Room. It involves immense preparation, practically continuous, at the Reserve Banks and the Federal Reserve Board. In specific preparations, at each of the Reserve Banks, and at the Federal Reserve Board, there are lengthy briefings in the week or weeks preceding the FOMC meeting, involving intensive discussions by the policymakers with their respective staffs.
In connection with the advance preparations, and the meeting itself, there are three books, each with a different colored cover, that are an integral part of the preparation and the decision-making process. Sometimes, and not totally inaccurately, monetary policy is equated with these three books, which contain the essential information used in the formulation of monetary policy: