Page 13

The FOMC meets eight times a year to set Federal Reserve guidelines regarding the purchase and sale of government securities in the open market as a means of influencing the volume of bank credit and money in the economy (i.e., interest rate decisions). Before each meeting a variety of data and information on current economic conditions is prepared for the committee to examine and consider in its decision. A key piece of information is the report generated by summarizing the data and commentaries gathered by the 12 federal reserve banks on their districts' current economic conditions. This report, commonly referred to as the Beige Book, contains information on key economic indicators such as consumer spending, tourism, manufacturing, construction and real estate, labor markets, prices, agriculture and natural resources, and banking and finance. The FOMC then pores over this data to determine the exact condition of the economy and to formulate its Monetary Policy.

Sometimes the committee decides not to take any action at all as it perceives the economy in a healthy state. Other times, however, the committee may decide to tighten or ease the Monetary Policy to correct an undesired economic condition or to head off possible future dangers. And in other cases it just issues statements which may point to its possible future decisions. More often than not the FOMC is proactive rather than reactive, meaning that it attempts to identify and neutralize potential economic hazards before the economy is confronted with them. These actions are known as "pre-emptive strikes" and since they are implemented before any signs of trouble appear, they are usually soft and cause minimal disturbance in the economy. It is noteworthy to mention that it is possible for the Fed to overdo or under-do its corrective actions, causing backlashes in the economy. Therefore the Fed is always cautious in its measures and takes every minute detail into account when formulating its plans. …