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Board of Governors of the Federal Reserve System
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Government Performance and Results Act Annual Performance Report

Monetary Policy Function

Strategic Goal

Conduct monetary policy that promotes the achievement of the Federal Reserve's statutory objectives of maximum employment and stable prices.

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Annual Performance Objectives

  1. Informed monetary policy: Stay abreast of recent developments and prospects for the U.S. and global economies and financial markets so that monetary policy decisions are well informed
  2. Understanding of macroeconomics and markets: Enhance our knowledge of the structural and behavioral relationships in the macroeconomic and financial markets, and improve the quality of data used to gauge economic performance, through developmental research activities
  3. Effective implementation of monetary policy: Analyze and implement monetary policy effectively in highly unusual economic, financial, and monetary circumstances
  4. Contribution to international efforts: Contribute to the development of U.S. international policies and procedures, in cooperation with the Treasury and other agencies, with respect to global financial markets, international organizations, and participation in international groups
  5. Expanded public awareness of monetary policy: Promote understanding of Federal Reserve policy among other government policy officials and the general public

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Performance Metrics

By statute, the Federal Reserve conducts monetary policy to foster the dual objectives of maximum employment and stable prices. The performance of monetary policy in making progress toward achieving these objectives continues to be reviewed by the Congress in the context of the Board's semiannual monetary policy report and the Chairman's accompanying testimony.6 It is recognized that monetary policy has only an indirect influence on economic performance and that fiscal policy, along with other policy actions of the Congress and federal government, plays an important role in influencing overall economic activity.

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Operational Processes and Resources Required to Meet Goals

Operational Processes, Skills, and Technology

The divisions of Research and Statistics, Monetary Affairs, and International Finance, as well as the Office of Financial Stability Policy and Research conduct activities in support of the Federal Reserve's monetary policy responsibilities. These divisions develop and present economic and financial data and analysis for use by the Board, the FOMC, and the Reserve Banks. Staffs in these divisions also provide economic and quantitative analyses and services to other functional areas of the Board. The staffs of these divisions are mainly economists, statisticians, financial analysts, research assistants, and information systems professionals. They rely on sophisticated automation support, including both a mainframe computer and a complex distributed processing network, to provide the computing power and analytical tools needed to manage, process, and analyze the large volumes of data necessary to support the monetary policy function.

Quality of staff is a major issue in meeting the analytical needs of the Board. To attract and retain the high-quality staff necessary to meet its objectives, the Board offers a compensation package designed to provide some degree of comparability with the market; nevertheless, competition for talented professionals in critical fields is intense.

Funding and Resources

The majority of the resources used to achieve the strategic goal are reported in the research divisions, the Office of Financial Stability Policy and Research, the Office of Board Members, and the Office of the Secretary. The combined expenses for 2011 for these divisions and offices totaled $125 million. The amount includes direct costs for 716 positions.

Research and Statistics

Information, data, and analyses prepared by staff in the Division of Research and Statistics serve as a background for the formulation and conduct of monetary policy. The division fosters a broader understanding of issues relating to economic policy by providing leadership in economic and statistical research and by supplying data and analyses for public use. The division also provides economic and quantitative analyses and services to other functional areas, including supervision and regulation, payments system policy and oversight, and consumer affairs. In addition, the division provides distributed processing automation support unique to the monetary policy function.

Monetary Affairs

The Division of Monetary Affairs supports the Board and the FOMC in the formulation and implementation of U.S. monetary policy and on matters pertaining to financial stability. The division serves as secretariat of the FOMC and contributes to the communication of policy through vehicles such as the FOMC statement and the minutes of FOMC meetings. The division also oversees the implementation of monetary policy through open market operations, discount rates and the operations and administration of the discount window, and reserve requirements. It coordinates with the Trading Desk at the Federal Reserve Bank of New York in the conduct of open market operations. The division produces data series on, and analyzes developments in, money, reserves, bank credit and profits, and interest rates; and it also forecasts movements in money, reserves, and bank credit. Regarding financial stability analysis, staff in the division, working with colleagues in other divisions, conducts analysis of topics related to financial stability, assists in the implementation of financial reform legislation, and provides support for the Board's financial supervision and regulation activities. The division also oversees the Term Deposit Facility and the Statistics and Reserves business function for the System.

International Finance

The Division of International Finance provides the Board, the FOMC, and other System officials with assessments of current and prospective international economic and financial developments. The division evaluates and forecasts major economic and financial developments abroad, developments in foreign exchange and other international asset markets, and U.S. international transactions. The division maintains close contacts with international organizations and foreign official institutions and supports the Board's participation in international meetings. The division also provides support for the Board's financial supervision and regulation activities.

Office of Financial Stability Policy and Research

The Office of Financial Stability Policy and Research coordinates staff efforts to identify and analyze risks to the financial system and the broader economy, including the monitoring of key financial institutions, markets, and infrastructures to assess emerging and structural vulnerabilities. The office also develops and evaluates alternative macroprudential policy responses to improve the resilience of the financial system.

Office of Board Members

The Office of Board Members provides overview, direction, and supervision for System goals, objectives, and projects involving monetary policy, supervision and regulation policy, and managerial policy. Within the office, the Public Affairs unit provides the public with information concerning Federal Reserve actions and works to increase the public's understanding of the System's functions, responsibilities, and policy goals. The Congressional Liaison program facilitates effective communication between the Board and the Congress and other government agencies.

Office of the Secretary

The Office of the Secretary is responsible for all aspects of the conduct of the meetings of the Board and provides records management, minutes, and correspondence-control services. It also administers the freedom of information program and provides other support services.

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Validation and Verification of Measured Values

Macroeconomic performance is monitored through a broad range of indicators, including both quantitative and qualitative information. The staff updates analyses of macroeconomic and financial conditions in part through extensive data collection and analysis. In addition, the financial markets provide a daily barometer on the state of the nation's economy. The FOMC holds eight regularly scheduled meetings each year to review the latest data and staff analyses and makes any necessary adjustments in policy. The Board formally reviews the state of the economy with the Congress semiannually, in its monetary policy report. The Chairman and other members of the Board testify on particular aspects of the economy and financial developments and issues on an ongoing basis.7

One set of data watched closely by the Board is the set of statistics describing prices. The Board pays careful attention to various measures of inflation, including the consumer price index, the producer price index, the price index for gross domestic product, and the price index for personal consumption expenditures, to gauge its success in promoting price stability, one of the key objectives of monetary policy.

Because the policy actions taken to support price stability take some time to have an effect, data that help to forecast changes in prices are used to help guide policy. These data include measures of industrial output, wage changes, hours worked, employment and unemployment, and a host of others. Such data are also monitored as key indicators of progress in achieving the Federal Reserve's objective of maximum employment. As part of the strategy for fostering its economic objectives, the Board works with other government agencies and private institutions to improve the quality of the economic data used in making decisions.

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6. Current and historical copies of the Monetary Policy Report to the Congress and the Chairman's testimony are available on the Board's website at to text

7. See the Monetary Policy Report to the Congress and the Chairman's testimony at to text

Last update: July 10, 2012

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