Planning Briefs
Understanding The Federal Reserve Mandate To End Inflation
Published Friday, February 16, 2024 at: 1:03 PM EST
The Federal Reserve System, the nation’s central bank, has a dual mandate to pursue maximum employment and maintain price stability. These two priorities are currently treated equally, but that was not always the case. In fact, the Fed’s bias toward maximizing employment was a critical driver of the stagflation that plagued the U.S. in the late 1960s and 1970s. Recognizing the need to balance price stability and maximum employment, in 1977, Congress revised the Federal Reserve Act.
The Federal Reserve Act was enacted in 1913, in response to the Panic of 1907. The Act was revised in 1977 to direct the Fed "to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” The 1977 revision of the Act was important, as it provided Chairman Paul Volcker with clear direction to end the Great Inflation, even at the cost of causing layoffs and throwing the economy into a recession.
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