The Fed's dual mandate, a duel between price stability and full employment : The Indicator from Planet Money The Federal Reserve has a dual mandate: keeping prices stable (and inflation low) and promoting "maximum employment." But sometimes, as the Fed attacks one goal, it can potentially hurt the other. It's a dueling dual mandate.

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Jobs vs prices: the Fed's dueling mandates

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UNIDENTIFIED PERSON: Previously on "Game Of Feds" (ph).


AMANDA ARONCZYK, BYLINE: (As character) The council has decided. Henceforth, the Federal Reserve Bank shall have two mandates - a dual mandate. Mandate No. 1, step forward.

SAM YELLOWHORSE KESLER, BYLINE: (As Mandate No. 1) Yes, your highness.

ARONCZYK: (As character) Your duty will be to fight for stable prices and low inflation.

KESLER: (As Mandate No. 1) Yes, your highness.

ARONCZYK: (As character) Mandate No. 2

WILLA RUBIN, BYLINE: (As Mandate No. 2) Your highness.

ARONCZYK: (As character) You will fight for maximum employment across the lands.

RUBIN: (As Mandate No. 2) It shall be my honor.

ARONCZYK: (As character) Some will say having two mandates will cause conflict in the realm, but what do they know?

RUBIN: (As Mandate No. 2) Mandate No. 1, I know you're trying to bring down inflation, but think - think how your actions will affect employment.

KESLER: (As Mandate No. 1) That's your mandate, No. 2. I'll carry mine out even if I have to crush you.

RUBIN: (As Mandate No. 2) We'll see about that.



Hey, why did you pause the show?


Sorry, I'm super confused. Why is there all this tension between the Federal Reserve's dual mandates? Why are they, like, literally dueling? And why is there so much nudity?

MA: You know what? You're right, I think what we need here is somebody to explain the backstory of the dual mandate. And actually, I know the perfect person to call.



MA: Raphael Bostic, president of the Atlanta Fed, it's Adrian Ma.

BOSTIC: Who is this?



WONG: Adrian, I thought you said you knew him.

BOSTIC: Wait, am I on speakerphone?

WONG: Oh, hi. Hi. I'm Wailin Wong.

BOSTIC: Hi. Can I ask, how did you get this number?

MA: Listen, we have a quick question for you.

BOSTIC: Can this wait? I'm kind of in the middle of dinner.

MA: It's about the Fed's dual mandate.

BOSTIC: Oh, well, why didn't you start with that? Here. Give me a second. I'm going to clean up, and then I'll be right back.

MA: Yes. So in a minute, we'll hear from Raphael Bostic, president of the Atlanta Fed, about the origins of the dual mandate. And hopefully, we'll get to the bottom of why there is this tension between the two.

So the Fed's dual mandate means that it has two main goals. The first is stable prices, and that means when inflation is running really hot, when prices are going up, the Fed raises what's called the Fed funds rate, which causes interest rates to rise, which slows down the economy and hopefully brings prices down over time. Now, over the past year, we have seen the Fed try to do exactly this. And the latest government figures released today show that it seems to be working. The annual inflation rate was 6.5% last month, which is actually the sixth straight month that it's gone down.

WONG: But a lot of economists and financial forecasters are worried the Fed might have gone too far. If the economy slows down too much, it could go into a recession, causing people to lose jobs. And that would work against the Fed's other primary mandate - to promote maximum employment. Basically, that's meant having an unemployment rate of around 4%.

MA: And when I called up Raphael Bostic to ask about these dueling dual mandates, he said, first off, it wasn't that way when Congress originally created the Fed in 1913.

BOSTIC: For the Federal Reserve, the mission was originally price stability and making sure that the economy operated in a very orderly way over time. The U.S. has put a little twist on it, and that started in the late '60s and early 1970s, when people across the country - and including in the civil rights movement - started to think that, you know, there are other things and other features that should inform how a central bank works. And so those activists got with the Congress, and there's an act called the Humphrey-Hawkins Act, where they added a number of things to the Fed's mandate, and one of them was maximum employment. And so when you hear the dual mandate, it's really a reflection that the Fed has to think about price stability, but it also has to think about maximum employment and how we are doing in that regard as well.

MA: And at the time, were people like, that's a great idea? Or was it controversial to say, like, the Fed should also be focusing on this?

BOSTIC: Well, it depends on who you talk to. You know, there are a lot of traditionalists who would say, when you ask institutions to do more than one thing, they don't do either of them well. But there are others who would say, look, these things are related to each other. And with any situation or in any pursuit, there are always going to be tradeoffs. And so I think that argument carried the day in the 1970s, and it's where we stand today.

MA: I've also read that these two goals could be in tension. Trying to fight inflation could cause a recession, which could cause unemployment, which could hurt people who might be on the margins, economically speaking.

BOSTIC: So, you know, one thing I would say, first, is we're trying not to have recessions. So even as we affect the pace of the economy through our policy stance, the goal is really to continue growth and have us have continuous, steady, long-standing growth, which is basically what you saw leading up to the pandemic. We had had eight or nine years of consecutive years of growth. So that's one thing I think is really important.

The second thing is - and I try to remind people of this as much as I can - high inflation hurts those with the least the most. Because if you can't pay for your food, you're not going to go to a workforce development program to get training. You're not going to go to college. And so if costs are forcing you to make hard decisions in the short run, you're going to wind up worse off in the long run. And we just really need to try. And I think it's really important that we give people the best opportunities in terms of how the economy performs so that they know that it's OK for them to invest in themselves. It's OK for them to invest in their businesses. And, you know, that's really the hallmark of an economy where price stability is being managed well.

MA: So there still seems to be some tension here, though, because if raising interest rates can end up causing a recession - this makes me think about is research that shows that during a recession, Black and Latino workers especially tend to get hit with job losses more than white workers.

BOSTIC: So you're exactly right. And there's a lot of evidence, some by researchers in the Atlanta Fed, that say when there's a recession, the last in are often the first ones out. And typically, the job losses are more significant for minorities and lower income people. But at the same time, if you can get the economy to grow for a long period of time, people who often weren't benefiting in periods of economic growth start to benefit a lot more.

MA: The dual mandate has been the call to action for the Fed for the past - a little less than 50 years. And you used an interesting phrase earlier, which was like, you know, the Fed has to think about these trade-offs. How would you say that it has played out in trying to balance those trade-offs?

BOSTIC: Well, I think it's forced us to actually have the conversation.

MA: Hmm.

BOSTIC: And in many regards, that's the most important thing. There's a possibility that if maximum employment was not on the radar screen, policymakers could be far more ruthless in trying to get inflation down to a number. You know, if it was only about getting to 2%, we might want to just move the Fed funds rate to some very high level that squeeze the economy in an extreme way and just got us down there. Like, you can do that. But that would come with so much cost that we shouldn't do it. You're trying to find that sweet spot where you get your price stability to be as positive as you can but also to get maximum employment to be as great as you can.

MA: That was Raphael Bostic, president of the Atlanta branch of the Federal Reserve. Special thanks to our voice actors Amanda Aronczyk, Sam Yellowhorse Kesler and Willa Rubin.

WONG: This episode of THE INDICATOR was produced by senior producer Viet Le, with engineering by Maggie Luthar. Sierra Juarez checked the facts. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.

MA: Well, I guess that's it. Wailin, what'd you think of "Game Of Feds"?

WONG: I mean, honestly, the whole premise of this show is nonsensical. I mean, a medieval fantasy drama about the Fed - it's like this show will use any gimmick to try to get people to pay attention to wonky econ stuff. I'm not buying it.

MA: (Laughter) Yeah, it's true. It does seem kind of desperate. Yeah.

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