Question

What are the two broad policy goals of the Federal Reserve consistent with its statutory mandate? Summarize how the Federal Reserve Open Market Committee perceived the current state of the economy in June.

Answer 1

The two broad policy goals are stable prices and maximum sustainable employment and are known collectively as the "dual mandate". The Federal Reserve's Open Market Committee ,which sets U.S monetary policy,has translated these broad concepts into specific longer-run goals and strategies.

Price Stability

The Committee judges that inflation at the rate of 2%,as measured by the annual change in the Price Index for Personal Consumption Expenditures,us most consistent over the longer run with the Federal Reserve's statutory mandate.

Maximum sustainable employment

Many non-monetary factors affect the structure and dynamics of the labor market ,and these may change over time and may not be measurable directly.

The Federal Reserve works to promote a strong U.S economy. The Congress has directed the Fed to conduct the nation's monetary policy to support three specific goals: maximum sustainable employment,stable prices,and moderate long-term interest rates. These goals are sometimes referred to as the Fed's "mandate".

In the month of June,a joint meeting of the Federal Open Market Committee and the Board of Governors was held.The chair opened the meeting with an acknowledgement of the extraordinary and deeply troubling events of the last two weeks. The chair noted that it was incumbent upon the leaders of the Federal Reserve System to continue to communicate with force and clarity about the Federal Reserve's core values,and to reaffirm its unflinching commitment to those values in pursuing the Federal Reserve's mandated goals. They included the discussion of Forward Guidance, Asset Purchases and Yield Curve Caps or Targets. They also discussed about the developments in Financial Markets and Open Market Operations. They suggested that U.S. real gross domestic product would likely post a historically large decline in the second quarter. The unemployment rate moved down by May and also the 10-year measure for PCE price inflation from the Survey of Professional Forecasters ticked down in the second quarter. The treasury yield curve steepened ,and the market- implied expected path of the federal funds rate declined somewhat. Liquidity conditions continued to improve in general ,but some stress was still evident in several markets.The participants also gave an Outlook on the economy and the current conditions.

In their meeting, members agreed that the coronavirus outbreak was causing tremendous human and economic hardship across U.S. and around the world. The virus and the measures taken to protect public health had induced sharp decline in economic activity and a surge in job losses. Consumer price inflation was being held down by weaker demand and significantly lower oil prices. Financial conditions had improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households, businesses and communities. Members agreed that the Federal Reserve was committed to using its full range of tools to support the U.S. economy in this challenging time , thereby promoting it's maximum employment and price stability goals.