Happy Wednesday! Let’s start with an easy (but important) one…

IN ACTION

“Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.” - Transcript of Chair Powell’s Press Conference (January 29, 2025)

THE BASICS

The dual mandate refers to the Federal Reserve’s two-pronged (dual) goal of promoting maximum employment and stable prices. The goal was established by Congress (mandate) as part of an amendment to the Federal Reserve Act, and has been in effect since 1977. In simple terms, the Fed’s mission is to keep as many people employed as possible while also achieving slow, stable price increases to goods and services.

WHY IT MATTERS

The dual mandate effectively summarizes the most critical objectives of the Federal Reserve. What’s often overlooked is that these are the central bank’s only two explicit objectives. Many economists and policymakers at the Fed (certainly Chair Powell) have made this point abundantly clear, frequently emphasizing the importance of the central bank not deviating from its legal mandate. Earlier this year, we saw the Federal Reserve withdraw from the Network for Greening the Financial System after citing concerns that its activities went beyond its goal.

Not all central banks have adopted a similar dual mandate. For example, the European Central Bank’s (ECB) mandate is simply to maintain price stability. Consequently, its policymakers, unlike those at the Fed, do not weigh the impact of its actions to the employment rate - rather focus exclusively on controlling prices. The employment rate, however, has its own (significant) impact on inflation, so that’s not to say the ECB will ignore impacts to employment altogether.

2025 AND BEYOND

While the dual mandate could be interpreted as somewhat restrictive, the Fed has not been afraid to take increasingly aggressive actions to support these loosely-defined objectives, particularly during times of crisis. The Fed pushed the boundaries of its powers during the Great Recession and throughout the pandemic, with central bankers citing its actions as consistent with the Fed’s dual mandate and necessary to protect the American people. This has raised concerns over whether the Fed’s role in the country’s economic outcomes has become too large, and could bring the loosely-defined nature of the dual mandate into focus.

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