Key points
- Unusual among central banks: many, like the ECB, have price stability as their primary goal.
- Creates trade-offs when the two goals conflict.
- Price stability is defined as 2% inflation; maximum employment has no fixed number.
Example
If unemployment is 3.5% but inflation is 6%, the Fed must tighten policy despite strong employment to satisfy the price stability leg of the mandate.
In history
Codified in the Federal Reserve Reform Act of 1977, the dual mandate drove the 2021-2022 balancing act between high inflation and tight labor markets.
Related terms