The Goals of U.S. Monetary Policy

The Federal Reserve has seen its legislative mandate for monetary policy change several times since its founding in 1913, when macroeconomic policy as such was clearly understood. The objective of “maximum” employment remained intact from the 1946 Employment Act; however, the interpretation of this term may have changed during the intervening 30 years. Besides clarifying the general goal of full employment, the Humphrey-Hawkins Act also specified numerical definitions or targets. Economists remain divided on the importance of the time inconsistency problem and on the need to put primary emphasis on price stability at the expense of output stabilization. The amended Act states that the Fed “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”.