What economic goals does the Federal Reserve seek to achieve through its monetary policy?

The Federal Reserve works to promote a strong U.S. economy. The Congress has directed the Fed to conduct the nation's monetary policy to support three specific goals: maximum sustainable employment, stable prices, and moderate long-term interest rates. These goals are sometimes referred to as the Fed's "mandate."

Maximum sustainable employment is the highest level of employment that the economy can sustain while maintaining a stable inflation rate.

Prices are considered stable when consumers and businesses don't have to worry about rising or falling prices when making plans, or when borrowing or lending for long periods. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together.

The Fed seeks to achieve its monetary policy mandate by influencing interest rates and general financial conditions. For example, by keeping policy interest rates low, the Fed makes homes more affordable for consumers and makes it cheaper for businesses to invest, expand, and hire. And by raising policy interest rates when inflation pressures are building, the Fed helps to cool the economy and preserve price stability.

 

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Last Update: August 19, 2016