What are the Fed's four monetary policy goals? In what sense does the Fed have a "dual mandate"?

One of the cornerstones of the Federal Reserve's monetary policy is 'Price Stability'. This goal is crucial because it focuses on keeping inflation— the rate at which prices for goods and services rise—low and stable. Price stability is important because unpredictable inflation can negatively affect people's ability to buy goods and services or plan for the future due to fluctuating costs. When prices change too rapidly, either increasing or decreasing, it can lead to economic uncertainty and can discourage investment and savings.

By aiming for a consistent and low inflation rate, usually around 2% as an ideal target, the Fed works to provide an economic environment where consumers can make purchasing and investment decisions with greater confidence. This predictable rate enables individuals and businesses to budget and plan for the long-term without fearing the unpredictable erosion of their purchasing power.

Another vital aspect of the Fed's monetary policy is the promotion of 'High Employment'. The goal is to achieve maximum employment, which means the Fed aims to create an economic scenario where nearly all individuals who want to work can find jobs that match their skills and preferences. High employment benefits society as it leads to income generation and higher living standards.

However, it does not mean zero unemployment, as there will always be a certain level of frictional unemployment—unemployment that arises from people moving between jobs, careers, and locations. The Fed considers natural unemployment levels, also known as the Natural Rate of Unemployment (NRU), when setting policies to avoid sparking high levels of inflation if the job market becomes too tight.

The Fed pursues 'Economic Growth' by fostering conditions that encourage a sustainable expansion of production, increase in GDP, and improvements in standards of living. Economic growth is a sign of a healthy economy where resources, including labor and capital, are utilized efficiently.

Policies are often designed to encourage investment and innovation, which are essential for growth. The Federal Reserve must carefully consider how its decisions might slow down or speed up economic growth, ensuring that growth is balanced with its other goals, particularly the maintenance of price stability.

Maintaining 'Financial Market Stability' is another objective of the Fed. Financial markets need to be stable and function properly to be effective; therefore, the Fed acts to prevent or mitigate financial panics and crises.

The institution does this through the regulation and supervision of banks, ensuring they have enough capital and are not engaging in excessively risky behavior. Additionally, during times of financial stress, the Fed may serve as a lender of last resort to banks and other financial institutions, providing liquidity and calming the markets.

The 'Dual Mandate' is a term used to describe the two primary goals of the Federal Reserve's monetary policy, as established by Congress: maximum employment and price stability. Balancing these two objectives can be challenging, as policies that are good for reducing unemployment may, at times, raise inflation risks, and vice versa.

The Fed's decision-making includes various economic indicators to assess the health of the economy related to these goals. By adjusting the federal funds rate and employing other monetary tools, the Fed attempts to nudge the economy toward these twin targets. The dual mandate is a crucial focal point of U.S. monetary policy and underscores the Federal Reserve's vital role in safeguarding the economy's broader health.