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The dual mandate: has the Fed changed its objective?

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  • Daniel L. Thornton

Abstract

The Federal Reserve is said to have a dual mandate of price stability and full employment. While the Fed has mentioned price stability as one of its primary goals, it has been reluctant to mention employment as a separate policy objective, preferring instead to state that maximum employment could best be achieved by achieving price stability. This hesitance ended with the December 2008 policy directive in which the Federal Open Market Committee (FOMC) noted its objectives were ?maximum employment and price stability.? Operationally equivalent language first appeared in the FOMC?s policy statement in September 2010 and has appeared in every subsequent statement. This article reviews the FOMC transcripts and biannual statements to Congress to provide some insight into the Fed?s historical reluctance to mention employment as an independent policy objective. The FOMC documents do not point to a specific reason for the historical reluctance, but they provide a few clues. Perhaps more importantly, they point to two changes that may explain the recent change in language: the increased emphasis on economic stabilization and the shift in emphasis from the growth rate of output to the level of output.

Suggested Citation

  • Daniel L. Thornton, 2012. "The dual mandate: has the Fed changed its objective?," Review, Federal Reserve Bank of St. Louis, vol. 94(Mar), pages 117-134.
    • Handle: RePEc:fip:fedlrv:y:2012:i:mar:p:117-134:n:v.94no.2
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    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/12/03/117-134Thornton.pdf
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    References listed on IDEAS

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    1. Daniel L. Thornton, 2011. "What does the change in the FOMC's statement of objectives mean?," Economic Synopses, Federal Reserve Bank of St. Louis.
    2. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Manchester School, University of Manchester, vol. 71(5), pages 478-497, September.
    3. Daniel L. Thornton, 2011. "Is the FOMC’s policy inflating asset prices?," Economic Synopses, Federal Reserve Bank of St. Louis.
    4. Mary C. Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
    5. Daniel L. Thornton, 2011. "The effectiveness of unconventional monetary policy: the term auction facility," Review, Federal Reserve Bank of St. Louis, vol. 93(Nov), pages 439-454.
    6. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
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    Cited by:

    1. Charles I. Plosser, 2019. "A Limited Central Bank," Journal of Applied Corporate Finance, Morgan Stanley, vol. 31(4), pages 16-20, December.
    2. Lael Brainard, 2017. "Why Opportunity and Inclusion Matter to America’s Economic Strength : a speech at the Opportunity and Inclusive Growth Institute Conference, sponsored by the Federal Reserve Bank of Minneapolis, May 2," Speech 953, Board of Governors of the Federal Reserve System (U.S.).
    3. Aurélien Goutsmedt, 2022. "How the Phillips Curve Shaped Full Employment Policy in the 1970s: The Debates on the Humphrey-Hawkins Act," Post-Print hal-03878346, HAL.
    4. George A. Kahn & Lisa Taylor, 2014. "Evolving market perceptions of Federal Reserve policy objectives," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-64.
    5. Daniel L. Thornton & David C. Wheelock, 2014. "Making sense of dissents: a history of FOMC dissents," Review, Federal Reserve Bank of St. Louis, vol. 96(3), pages 213-227.

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