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The Federal Reserve's Open Market
Committee announcements and news reports about
the committee frequently contain terminology that
may not be familiar to many readers.
| Here's a brief glossary to help you get through "Fed speak." |
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1. Bias
One tool the Fed has to fight inflation is loosening
or tightening the reins on short-term interest
rates. The Fed maintains a tightening bias if
it perceives inflation to be a risk to the overall
health of the economy. Similarly, it could maintain
a loosening bias if the greater risk is a slowdown
in economic growth. If the Fed believes a proper
balance is being maintained, its bias is said
to be neutral.
2. Discount rate
The interest rate charged to
commercial banks and other depository institutions
on loans they receive from their regional Federal
Reserve bank's lending facility -- the discount
window.
3. Federal funds target rate
The short-term interest rate that banks charge other banks to borrow money overnight at the Federal Reserve. The actual rate, or effective rate, changes daily and may be above or below the targeted rate. The FOMC sets the rate at its regularly scheduled meetings but may opt to change it between meetings should economic conditions warrant a change.
4.
Federal Open Market Committee, or FOMC
Consists of 12 members: the seven members
of the Board of Governors of the Federal Reserve
System; the president of the Federal Reserve Bank
of New York; and four of the remaining 11 Reserve
Bank presidents, who serve one-year terms on a
rotating basis. The FOMC holds eight regularly
scheduled meetings per year. At these meetings,
the committee reviews economic and financial conditions,
determines the appropriate stance of monetary
policy and assesses the risks to its long-run
goals of price stability and sustainable economic
growth.
5.
Gross domestic product, or GDP
The market value of goods and services produced by labor and property in the United States. It is the primary measure of U.S. production.
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Fed announcement: Oct. 8, 2008
