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News > Economy
Grasping Fed terminology
December 21, 1999: 1:15 p.m. ET

Understanding Federal Reserve policies and terms is simpler than it appears
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NEW YORK (CNNfn) - The Federal Reserve, the nation's central bank, affects the speed of the U.S. economy by altering the key federal funds interest rate, and also influences other rates around the world.
    Following are some key terms associated with the Fed and its interest rate policies:
    Federal Open Market Committee: The FOMC meets eight times a year to set monetary policy by deciding where to set key interest rates that commercial banks and other lenders use as a gauge for their own interest rates.
    The chairman of the FOMC, and of the Federal Reserve itself, is Alan Greenspan. The 12-member committee includes the seven members of the Fed's Board of Governors, the president of the Federal Reserve Bank of New York and four presidents from the 11 other regional Reserve Banks who serve one-year terms.
    Interest rate bias: The Fed's bias provides financial market participants with a hint about which direction the Fed's governors are leaning in terms of monetary policy.
    An official announcement of a change in the Fed's bias -- or inclination toward future rate action -- alerts individuals and financial markets that the Fed is considering adjusting rates some time in the near future. The Fed changed its policy earlier this year to allow it to announce bias changes immediately following its meetings, rather than waiting six weeks to release the official minutes from the meeting, as was its practice in the past.
    Fed officials said they plan to further clarify their "bias announcements, which may include revising their procedure for disclosing their outlook on the U.S. economy and monetary policy.
    Fed funds rate: A target interest rate the Fed can adjust from time to time to influence the interest rate individual banks in the U.S. can charge each other to borrow money overnight. The rate currently stands at 5.5 percent.
    Discount rate: The discount rate, which currently rests at 5 percent, is the true foundation for interest rate policy within the Fed. The discount rate is the rate of interest that the central bank would charge commercial banks to borrow money if they needed it. This option is rarely exercised, however, since most U.S. banks lend money to each other. This rate is used mainly as a barometer for where interest rates should be. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.