Recently, there has been increasing mention of the Federal Reserve’s “Dual Mandate.”
While my thoughts on the topic are complex, and I am not necessarily in agreement with it, I think highlighting some reference material on the the “Dual Mandate” is apropos as I expect there to be much more mention of this in the future.
One of the most thorough discussions of the “Dual Mandate” – especially in the context of our current economic situation – can be found in a February 13, 2012 speech by FRBSF President and CEO John C. Williams titled “The Federal Reserve’s Mandate and Best Practice Monetary Policy.”
An excerpt from the speech:
Let me start with the Fed’s mission. It’s often said that Congress assigned the Federal Reserve a dual mandate: maximum employment and stable prices. But, that’s not quite accurate. In fact, the Fed has a triple mandate. Section 2A of the Federal Reserve Act calls on the Fed to maintain growth of money and credit consistent—and I quote—“with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
The above paragraph contains a footnote referencing the following, as seen in the Federal Reserve Act, Section 2A (Monetary Policy Objectives):
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
[12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]
The speech also contains a variety of other notable material, including some long-term charts illustrating various pertinent metrics concerning the “Dual Mandate,” as well as the first endnote, an excerpt of which is seen below:
It is interesting to note that the Federal Reserve’s legal mandate has evolved over time in response to economic events and advances in understanding of how monetary policy and the economy function. For example, in the original Federal Reserve Act of 1913, the Fed had no mandate for macroeconomic stabilization and was only charged with providing an “elastic currency” and to act as a lender of last resort for banks. The quote here originates in the Federal Reserve Reform Act of 1977 and remains in place today. See Judd and Rudebusch (1999) for some discussion and more details.
The Federal Reserve Bank of Chicago also maintains a page on the “Dual Mandate” with charts updated as of May 9, 2012.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1320.06 as this post is written