Uhhh, So?

Apparently it is some kind of amazing new insight or quasi-scandal that the Fed seems to care more about inflation than unemployment, at least as measured by the language of its meeting notes.

Call me crazy, but the Fed's job is to manage the currency and money supply, not to manage employment or the broader economy.  I have always assumed that it was understood by all that keeping the value of money stable (ie fighting inflation) was the Fed's priority ahead of other economic issues.  What am I missing here?

  • Brad Warbiany
  • Kevin Dick

    Legally, they have a dual mandate. Moreover, there a reasonable non-Keynesian reasons to believe that targeting some combination of inflation and output is better than targeting just inflation. See for instance Scott Sumner. Whether you agree or not, it is the law. And it's not so obviously stupid a law that it should be ignored.

  • Noumenon72

    It's because the concept of the Phillips curve stated that unemployment and inflation were inversely related, so that managing one is managing the other.

  • Mercury

    Correct:

    http://www.gpo.gov/fdsys/pkg/USCODE-2011-title12/html/USCODE-2011-title12-chap3-subchapI-sec225a.htm

    Warren is technically incorrect in his assertion that the Fed's job does not include managing unemployment.

    However, when you can more or less change the definition of "unemployment" at will (see: Labor Force Participation Rate) that mandate looses most of its teeth.

  • Todd Ramsey

    What Is the Dual Mandate?

    In 1977, Congress amended The Federal Reserve Act, stating the monetary policy objectives of the Federal Reserve as:

    "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."

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Which was disproved in the 1970s.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Of late, the Fed has seen mission creep with regard to the dual mandate, and has waded into the political arena, as Bernanke observed that Congressional gridlock necessitated ongoing accommodative policy (or words to that effect).

    Obviously, Bernanke had no business alluding to that, especially since the Fed has no ammo left in their gun (ZIRP, QE4, etc.).

  • ErikTheRed

    Political power that limits itself in scope? You must be new here. :-)