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The Federal Reserve's evolving interpretation and implementation of its mandate

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  • Orphanides, Athanasios

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.

Suggested Citation

  • Orphanides, Athanasios, 2024. "The Federal Reserve's evolving interpretation and implementation of its mandate," IMFS Working Paper Series 213, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    • Handle: RePEc:zbw:imfswp:306827
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    References listed on IDEAS

    as
    1. Carl Walsh, 2003. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 93(1), pages 265-278, March.
    2. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
    3. Bordo, Michael D. & Orphanides, Athanasios (ed.), 2013. "The Great Inflation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226066950, October.
    4. Alan Greenspan, 2004. "Risk and Uncertainty in Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 33-40, May.
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    More about this item

    Keywords

    Federal Reserve; mandate; maximum employment; monetary policy strategy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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