The Goals of U.S. Monetary Policy

Abstract

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 not clearly understood. The most recent revisions were in 1977 and 1978, and they require the Fed to promote both price stability and full employment. The past changes in the mandate appear to re ect both economic events in the U.S. and advances in understanding how the economy functions. In the twenty years since the Fed’s mandate was last changed, there have been further important economic developments as well as re nements in economic thought, and these raise the issue of whether to modify the goals for U.S. monetary policy once again. Indeed, a number of other countries–notably those that adopted the Euro as a common curency at the start of this year–have accepted price stability as the new primary goal for their monetary policies. FRBSF Economic Letter