• Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
Economy

The Fed’s Triple Mandate Problem: It’s Time to End the Confusion

by March 5, 2025
by March 5, 2025

What is the Federal Reserve’s job? The standard answer is to maintain full employment and stable prices. This is what economists and commentators mean when they talk about the “dual mandate.” But there’s a problem—as a matter of law, the Fed’s mandate has three parts, not two.

The Federal Reserve Reform Act of 1977 established the Fed’s objectives as we know them today. In addition to job promotion and price stability, the central bank is responsible for “moderate long-term interest rates.” It’s supposed to conduct monetary policy with all three goals in mind.

You almost never hear about the interest rate plank. There’s a tacit agreement among policymakers that this portion of the mandate is redundant. The Fed does all it can for interest rates when it achieves its employment and price stability goals.

As a matter of economic theory, this is a strong argument. Interest rates are prices for capital. These ultimately depend on the supply of and demand for loanable funds. We want markets to price capital such that the last additional amount supplied is just as valuable as the last additional amount demanded. This is a standard efficiency result from basic economics. Markets are good at pricing and valuation. Besides maintaining price stability, meaning a stable value for the monetary unit—prices are denominated in dollars, after all—there’s not much monetary policy can do to improve it.

But there’s a problem here. The law of the land requires the Fed to care about interest rates. Even if economists are right about the redundancy of the interest rate plank, nobody elected them to write the nation’s laws. You can’t substitute the judgment of a few macroeconomic experts for that of elected legislators without violating the democratic process.

Furthermore, the reasoning behind the alleged irrelevance of interest rates proves too much. The same arguments also imply the Fed shouldn’t care about employment! Everything we said about capital markets also applies to labor markets. Supply and demand for labor finds the right balance between additional benefits and costs of working. The Fed does all it can for workers by focusing on price stability. If we truly believe the interest rate plank is redundant, logic compels us to come to the same conclusion about the employment plank.

The Fed has just as much reason to start ignoring the employment plank as it has for ignoring the interest rate plank in recent decades. If the central bank announced it would henceforth interpret the employment and interest rate parts of its mandate as fully covered by the price stability part of its mandate, you can bet economists, public intellectuals, and policy experts would raise a stink. For some reason, everyone views promoting employment as more important than stabilizing interest rates. Something tells me this reflects political biases more than reasoned reflection.

Fortunately, there’s a way around this dilemma. We can improve Fed policymaking while also respecting basic democratic norms. The solution is to amend the Federal Reserve Act once more. The economists are, in fact, right about the irrelevance of the interest rate plank. They would also be right about the irrelevance of the employment plank if they would only follow their logic to its necessary conclusion. It’s time to end the capital-labor asymmetry by striking these parts of the Fed’s mandate. 

But economic theory, even good economic theory, does not deserve citizens’ obedience. Duly ratified law does. Hence, democratically accountable legislators should narrow the Fed’s goal to price stability only.

This shouldn’t be a hard sell, politically. We’re less than three years out from crippling inflation. Prices during the summer of 2022 were rising at almost 10 percent per year. Even now, Americans are hopping mad about high prices. Eggflation, anyone? While many of these prices reflect non-monetary factors, the overall level of prices is much higher than it would have been had the Fed not overreacted to COVID-19. Frankly, it’s an indictment of our elected representatives—especially the Republicans, who campaigned on this—that they haven’t already refocused the Fed on one of the few things it can control.

Central banking as a matter of law conflicts with central banking as a matter of policy. Resolving the tension is hopeless unless we both change the relevant statutes and stop selectively applying the economic way of thinking. Let’s fix both problems by making the Fed responsible for stable prices alone.

0 comment
0
FacebookTwitterPinterestEmail

previous post
The Trolley Problem of Taxation: Should DOGE Savings Go to Taxpayers?
next post
Trump proclaims that ‘wokeness is dead,’ calls to permanently ban sex changes for minors

Related Posts

Kavanaugh cites 3 presidents in explaining Supreme Court’s...

August 2, 2025

China’s growing nuclear arsenal aims to break US...

August 2, 2025

Trump ally Bukele’s party amends El Salvador constitution...

August 2, 2025

Trump endorses ‘MAGA warrior’ for RNC chairman after...

August 2, 2025

Trump repositions 2 nuclear submarines after ‘highly provocative’...

August 2, 2025

Trump moves nuclear submarines weeks after praising sub’s...

August 2, 2025

WATCH: Trump says he is hopeful Hillary Clinton...

August 2, 2025

Recess on ice as Republicans hunker down for...

August 2, 2025

Iran says it has ‘plenty of scientists’ left...

August 2, 2025

Cambodia to nominate Trump for Nobel Peace Prize...

August 2, 2025

Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.

By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

Recent Posts

  • BYD’s July sales stall, casting doubt on 2025 delivery target

    August 2, 2025
  • US stock plunge as jobs data disappoints and tariff tensions rise

    August 2, 2025
  • Moderna cuts 2025 revenue to $2.2B after UK booster delay

    August 2, 2025
  • Brazil antitrust watchdog probes Microsoft after Opera complaint over edge browser practices

    August 2, 2025
  • Reddit shares surge 20% on record profit and strong revenue outlook

    August 2, 2025
  • OpenAI raises $8.3B as AI demand grows: report

    August 2, 2025

Editors’ Picks

  • 1

    Meta executives eligible for 200% salary bonus under new pay structure

    February 21, 2025
  • 2

    Walmart earnings preview: What to expect before Thursday’s opening bell

    February 20, 2025
  • 3

    New FBI leader Kash Patel tapped to run ATF as acting director

    February 23, 2025
  • 4

    Anthropic’s newly released Claude 3.7 Sonnet can ‘think’ as long as the user wants before giving an answer

    February 25, 2025
  • 5

    Nvidia’s investment in SoundHound wasn’t all that significant after all

    March 1, 2025
  • 6

    Cramer reveals a sub-sector of technology that can withstand Trump tariffs

    March 1, 2025
  • 7

    Elon Musk says federal employees must fill out productivity reports or resign

    February 23, 2025

Categories

  • Economy (2,057)
  • Editor's Pick (203)
  • Investing (185)
  • Stock (1,371)
  • About us
  • Contact us
  • Privacy Policy
  • Terms & Conditions

Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Portfolio Performance Today
  • Investing
  • Stock
  • Economy
  • Editor’s Pick
Copyright © 2025 Portfolioperformancetoday.com All Rights Reserved.

Read alsox

Dollar’s Decline Meets Rising Dedollarization: The Threat...

June 23, 2025

Trump inks trade deal with UK, previews...

May 11, 2025

NIH: The $47-Billion Sacred Cow Is Scared

April 5, 2025