The Federal Reserve’s Evolving Interpretation and Implementation of Its Mandate

Athanasios Orphanides

No 19697, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Throughout its history, the Fed has operated with a muddled mandate that has not explicitly recognized price stability as the primary goal of monetary policy. The Fed’s success in maintaining price stability and fostering the good economic performance associated with it has depended on how it interpreted its mandate and implemented its policy strategy. In the 1970s and in the recent past, the Fed interpreted its mandate in an overambitious fashion, placing undue emphasis on the elusive goal of maximum employment. On both occasions, the Fed’s strategy proved insufficiently resilient, and high inflation followed. To improve its policy strategy the Fed ought to revert to earlier interpretations of its mandate that acknowledge the primacy of price stability as a policy guide.

Keywords: Federal; Reserve (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 E61 (search for similar items in EconPapers)
Date: 2024-11
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