Dual mandate
The two goals Congress set for the Federal Reserve: maximum employment and stable prices. Stable prices still require that money not outrun output.
The Federal Reserve Act directs the Fed to promote “maximum employment, stable prices, and moderate long-term interest rates.” Three goals are named in the statute; the conventional shorthand is “dual mandate”, because moderate long-term rates are generally understood to follow from achieving the first two rather than being pursued separately.
Neither goal is defined numerically in the statute. Congress wrote the ends and left the means — including how much money to create — to the central bank. The Fed has adopted an explicit 2% target for inflation, measured by the price index for personal consumption expenditures. That is a Committee choice, not a figure in the law, and it doubles the price level over a working lifetime. It has deliberately not adopted a fixed numerical target for employment.
The two goals can conflict. Policy tight enough to bring inflation down can raise unemployment; policy loose enough to support employment can let inflation run. When they conflict, the committee has to choose who pays, and it says so in the statement. The employment half is not an alibi for easy money. Sustained inflation is still produced by money growing faster than output. See what causes inflation.
A worked example
Inflation is running at 4 percent against a 2 percent target while unemployment is at 3.5 percent. The two goals point the same way: tightening lowers inflation and the labour market can absorb it. Now suppose inflation is at 4 percent and unemployment is rising toward 6 percent. Tightening to fight inflation risks pushing unemployment higher; loosening to support jobs risks entrenching inflation. The mandate gives no formula for that trade-off. The Committee decides, and its statement will say which goal it judged to be further from target.
The figures are illustrative. The conflict is the ordinary condition of the job, not the exception.
How to read it in coverage
When a statement says the Committee is “attentive to the risks to both sides of its mandate”, it is saying the two goals are in tension — and that it is about to choose. “Maximum employment” has no number attached, deliberately; “stable prices” does — 2 percent on the PCE index, a path for the price level, not a freeze. A story that reports the Fed “targets” a specific unemployment rate has misread the statute. The explainer covers where the mandate came from and how the Committee has interpreted it.
It is the frame for nearly every FOMC statement. When the two goals point in opposite directions, the statement language is where the committee's choice — who pays — shows up first.