What Happens Inside the Fed Meetings Where Decisions on US Interest Rates are Made?

You’ll never get to attend a meeting of the Federal Open Market Committee (FOMC), where the fate of the economy is plotted, though your finances will certainly feel the effects of the decisions made there.

Eight times a year, the committee meets over a two-day period to set the Federal Reserve’s benchmark federal funds rate, one of the most important numbers in the entire economy. It influences the interest rates you’re offered on all kinds of credit, not to mention is used as a tool to temper inflation.

Unlike many government deliberations, however, the meetings where this all-important rate is determined take place outside of the public eye: Minutes from the meetings aren’t released until weeks afterward, and full transcripts are only made available five years later.

Fed policy makers will gather on Tuesday and Wednesday this week for the first time in 2024. Market participants expect the FOMC will stand pat on interest rates this week, as it has at its past two meetings, but they will be closely watching what Fed Chairman Jerome Powell and the rest of the committee say about the possibility of rate cuts at subsequent meetings.

To learn more about how this all-important decision is made, we bring you inside the Federal Reserve’s Martin building where the FOMC meets.

We interviewed former members and looked at meeting minutes and transcripts to get an idea of what it’s like to sit around the big square table and make open market decisions. You’ll hear from two former members of the committee—James Bullard and Jeffrey Lacker.

Bullard was president of the Federal Reserve Bank of St. Louis from 2008 until August 2023, when he retired to become the dean of Purdue University’s Daniels School of Business. Lacker was president of the Richmond Fed from 2004 through 2017 and is now a professor of economics at the Virginia Commonwealth University School of Business.

Decisions are Usually Inevitable Before the Meeting

The Federal Reserve has a dual mandate to achieve maximum employment and keep prices stable, goals that are sometimes at odds with one another. If the economy heats up too much, boosting employment, inflation can sometimes rise to undesirable levels.

The FOMC, through its monetary policy decisions, plays a central role in either promoting economic growth via low interest rates, which can spur inflation, or squashing inflation through higher rates, potentially causing the economy to languish. The FOMC is now at a turning point. After nearly two years of raising and maintaining high rates to tame inflation, the Fed appears poised to start cutting rates soon.

The main decision the FOMC must make at any meeting is whether to be “hawkish” or “dovish” when setting the benchmark interest rate. Hawkish policy favors keeping rates higher to contain price pressures, while dovish policy focuses on low rates to support growth and employment.

The week before the meeting, the FOMC members are given three options for what policy rate they’ll set, and what statement they’ll publicize alongside it, created by the chairperson and their staff, according to interviews with former members and released transcripts.

Alternative B is the default choice, and represents what the chair wants to do. Alternative A is more dovish, that is, setting a lower rate, or possibly keeping the same rate but with a statement indicating an inclination for lower rates or slower rate increases in the future.

Alternative C either sets a higher rate or sets a more hawkish tone in the statement.

The meetings are highly structured. For example, each participant gets a chance to give their assessment of the economy. That process takes an hour and a half or more, even with people sticking to an informal time limit of about 10 minutes, Bullard said.

At the end of the meeting, after much deliberation, each member votes. Almost every time, they select Alternative B. Only once during Lacker’s tenure—which overlapped with former Fed chairs Ben Bernanke and Janet Yellen, but ended before Powell became chairman in 2018—did they pick a different one.

“Sometimes I joke with people that you don’t really have to do much because you know Option B is going to be the answer,” said Bullard, who served as an FOMC member under Bernanke, Yellen and Powell. “But there’s a lot of method to the madness.”

The Message is Painstakingly Devised

While the policy rate is usually set in stone, the statement is often revised, with members sometimes taking sentences or language from other statements and putting them into Alternative B. Sometimes, during periods when the Fed is holding its interest rate steady, the result is a statement nearly identical to the previous one with perhaps just a word or two changed.

The Fed’s interest rate policy at any given meeting is usually predictable and well-known to markets. The committee makes decisions based on publicly available economic data, and FOMC members give frequent public appearances where they air their thoughts on the appropriate interest rate policy.

“The debate on monetary policy is going on 365 days a year for 24 hours a day, all around the world,” Bullard said. “The meetings are definitely important, but they’re a snapshot of the ongoing debate.”

The debate didn’t always happen out in public. The FOMC only began explaining its rate decisions and creating meeting transcripts in 1994 under then-chairman Alan Greenspan, and the tradition of the Federal Reserve chair holding a press conference after each meeting began in 2011, when Bernanke was chairman.

Until the 1990s, the central bank’s leaders were notoriously secretive, believing that monetary policy would be more effective if it came as a surprise to markets. That began to change under Greenspan, who over time came to believe in more transparency during his tenure, which lasted from 1987 through 2006. 

There’s Very Little Dissent in the Ranks

Occasionally, some members vote against the consensus, and those dissents, and the reasons for them, are noted in the publicly available policy statement.

For example, Lacker dissented at all eight meetings in 2012, when Fed policy was extremely dovish, holding its interest rate near zero. The dissents are more about making a statement than overriding the chairman’s preference, and playing a long game of attempting to influence the committee’s thinking, Lacker said.

“The chairman doesn’t get outvoted. It just doesn’t happen,” he said.

The disagreements are polite and never get heated, said Lacker, who was one of the Fed’s most frequent dissenters.

“I never detected any impoliteness or hostility,” he said.

The last time a member dissented was in June 2022, when the Fed was in the midst of a campaign of rapidly hiking its interest rate to combat inflation. At that meeting, the committee voted to raise its interest rate by three-quarters of a point, but Esther George, president of the Kansas City Fed, preferred a slower half-a-point increase.

Correction, Jan. 29, 2024 — This article has been corrected to state which member of the FOMC voted for a lower rate increase at the June 2022 meeting. It was Esther George.