The U.S. Federal Reserve's mandate was shaped in the 1970s, when the country suffered from high inflation and unemployment. The Federal Reserve Act of 1977 modified the original act that established the Federal Reserve in 1913 and clarified the roles of the Board of Governors and the 澳洲幸运5官方开奖结果体彩网:Federal Open Ma꧋rket Committee (FOMC).

Congress explicitly stated the Fed's goals should be "maximum employment, stable prices, and moderate long-term interest rates." These goals, which remain today, came to be known as the Fed's "dual mandate." In this article, we explore all three facets of the 澳洲幸运5官方开奖结果体彩网:central bank's mandate by first looking at maximum employment before turning to the other two goals, which can effectively be trea🅠ted as 🦩a single mandate.

Maximum Employment

Maximum (or full) employment is the total measure of employment that the economy can experience without any overt inflationary pressures. Almost everyone who wants a job can secure one during maximum employment. The goal, though, isn't to reach 100% employment and completely eradicate 澳洲幸运5官方开奖结果体彩网:unemployment.

Economists know there will always be some level of unemployment. People will always quit and start new jobs, businesses will fail and new ones will be set up, and specifi💖c sectors will contract and expand. Because it takes time to find a new job, there will always be a certain lꦗevel of unemployment. As such, the Fed is not tasked with achieving 0% unemployment.

The desired unemployment level prevails in normal 澳洲幸运5官方开奖结果体彩网:economic conditions or the absence of a boom or recession. This is referred to as the 澳洲幸运5官方开奖结果体彩网:noncyclical rate of unemployment (previously known as the natural rate of unemployment). It is determined by structural factors that affect the flexibility or mobility of the 澳洲幸运5官方开奖结果体彩网:labor market. For example, regulations that restrict labor mobility tend to raise the natural rate. However, allowing job-seekers toꦦ wꦅork in other regions can effectively reduce the natural rate of unemployment.

It is not always obvious whether the economy is in normal economic times or even where the noncyclical rate of unemployment falls. Thus, the Fed must rely on assessments from its members despite the uncertainty, and these are always subject to revision. The longer-term natural or normal rate of unemployment is estimated to hover around 4.3% during 2025. That estimate is expected to drop to 4.2% as the economy heads into 2030.

Price Stability

People and businesses need to be reasonably confident that prices will remain relatively constant over time so they can plan for the future. As a result, unstable prices (through either deflation or rapid inflation) can have drastic๊ consequences on economic stability.

As noted above, ensuring stable prices and moderate long-term 澳洲幸运5官方开奖结果体彩网:interest rates could effectively be interpreted as a single mandate. That's because long-term nominal interest rates are set with inflation expectations in mind. For any given 澳洲幸运5官方开奖结果体彩网:nominal interest rate, rapidly rising prices diminish the 澳洲幸运5官方开奖结果体彩网:real interest rate that lende🌌rs receive and debtors must pay. Thus, in an unstable monetary environment with rapidly rising prices, lenders will want to charge much higher interest rates to mitigate the inflation rate risk.

The FOMC began targeting inflation at 2% in January 2012 to achieve its dual mandate. This was just after combining the goals of stable prices and moderate long-term interest rates into a single one. As such, many see this as the Fed's attempt to be consistent with the single mandate of price stability sought by the European Central Bank (ECB).

By ensuring price stability, the Fed reasons that this inflationary target creates a stable economic environment that can foster the goal of maximum employment. When prices are stable, people and businesses can make longer-term economic decisions necessary for stable 澳洲幸运5官方开奖结果体彩网:economic growth. This leads to improved🦂 employment opportunities.

Explain Like I'm Five

The Federal Reserve is the centr𝐆al bank of the United States. It has two important duties, assigned by Congress: maintaining high employment and keeping prices stable. It fulfills those tasks by controlling the flow of money through the economy.

But it's impossible to achieve both goals at once, since low unemployment leads to high prices, and vice versa. Instead, the Fed is continually adjusting interest rates to balance the two priorities. It aims to keep unemployment low, but not zero. It also aims to limit price growth at about 2% per year.

The Bottom Line

Whether it is a triple, dual or single mandate, the primary aim of the Federal Reserve is to create a stable monetary environment. To achieve this, the Fed has deemed that targeting inflation (by keeping it at a low and stable rate of near 2%) is the best way to achieve such stability.