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March/April 2012, 
Vol. 94, No. 2
Posted 2012-03-01

The Dual Mandate: Has the Fed Changed Its Objective?


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.