fed

The Federal Reserve's dual mandate is the core statutory objective for U.S. monetary policy, as established by Congress in the Federal Reserve Act (most clearly amended in 1977). It directs the Fed to conduct policy to promote maximum employment and stable prices (with moderate long-term interest rates often viewed as a byproduct of achieving the first two, reducing it effectively to two coequal goals).

This is the exact language from the law (12 U.S.C. § 225a): monetary policy should "promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." In practice, the Federal Open Market Committee (FOMC) and Fed officials refer to it as the "dual mandate" because stable prices and moderate long-term rates are seen as interconnected—long-term rates tend to stay moderate only in a low-inflation, stable environment.The Two Goals Explained

1. Maximum Employment (also called "maximum sustainable employment")
   • This means the highest level of employment (or lowest sustainable unemployment rate) the economy can achieve without triggering accelerating inflation.
   • It's not a fixed number like "4% unemployment" because the level that can be sustained changes over time due to demographics, technology, labor market dynamics, regulations, and other non-monetary factors.
   • The Fed assesses it using a broad range of labor market indicators: unemployment rate, underemployment, labor force participation, job vacancies, wage growth, etc.
   • A strong labor market benefits everyone by providing broad-based opportunities, reducing inequality, and allowing marginalized groups to enter or advance in the workforce. High employment uses labor resources efficiently and supports overall prosperity.
2. Stable Prices (price stability)
   • This means low and predictable inflation over the longer run, so households and businesses can plan, save, borrow, and invest without worrying about sharp price swings.
   • Since 2012, the FOMC has explicitly judged that an inflation rate of 2 percent per year—as measured by the annual change in the Price Index for Personal Consumption Expenditures (PCE)—is most consistent with this goal.
   • Why 2%? It's low enough to avoid the costs of high inflation (e.g., distorting decisions, eroding purchasing power) but provides a buffer against deflation (falling prices, which can lead to delayed spending, debt burdens, and economic stagnation).
   • Price stability fosters confidence and a healthy environment for growth and employment.

How the Fed Pursues the Dual MandateThe FOMC sets monetary policy (primarily by influencing short-term interest rates via tools like open market operations) to move the economy toward both goals simultaneously. The goals are often complementary—a stable, low-inflation environment supports sustainable job growth—but trade-offs can arise (e.g., during supply shocks or when inflation is too high, tighter policy to fight inflation may temporarily slow employment gains).

• In recent years (including into 2026), the Fed has navigated post-pandemic inflation surges by raising rates aggressively, then easing as inflation fell while the labor market stayed resilient. Officials monitor the "balance of risks" between overshooting on inflation or undershooting on employment.
• The framework was updated in 2020 to emphasize average inflation targeting (allowing inflation to run moderately above 2% for a time after periods below target) and a more inclusive view of maximum employment.

As of January 2026, amid ongoing political pressures (including debates over Fed independence and Chair Jerome Powell's leadership—his chair term ends in May 2026), the dual mandate remains unchanged and central to the Fed's decisions. Powell and other officials continue to emphasize pursuing both goals without favoring one over the other politically.In short, the dual mandate gives the Fed flexibility to support a strong, stable economy for all Americans, balancing jobs and low inflation as its primary mission.

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Henry McClure 

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785-383-9994

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