The Fed's dual mandate, explained

What the statute actually says

The Federal Reserve Act directs the Board and the Committee to promote “maximum employment, stable prices, and moderate long-term interest rates.” Three goals are named. The shorthand everyone uses is the dual mandate, because moderate long-term rates are generally treated as a consequence of achieving the other two rather than a separate objective.

Neither of the two headline goals is defined in the statute. Congress wrote the ends and left the means, and the definitions, to the central bank.

Only one of them has a number

The Fed has adopted an explicit target for stable prices: 2% inflation over the longer run, measured by the price index for personal consumption expenditures. That is a choice by the Committee, not a figure in the law, and it was only stated publicly in 2012.

Maximum employment has no such number, and the omission is deliberate. The highest level of employment the economy can sustain without generating inflation shifts with demographics, technology and participation. The Committee therefore assesses it against a range of indicators rather than declaring a target it would have to keep revising.

When they conflict

Most of the time the two goals point the same way: a weakening economy brings both slower growth and slower price increases, and looser policy helps both.

The hard case is when inflation is high and the labour market is deteriorating at the same time. Policy tight enough to bring prices down makes unemployment worse; policy loose enough to protect jobs lets inflation persist. There is no formula that resolves this. The Committee weighs how far each goal is from its objective and how long it would take to close each gap — and the balance it strikes shows up in the wording of the statement before it shows up in the rate.