By Ryan McMaken*

In recent years, Congress has attempted to add various new mandates to the Federal Reserve’s mission. In 2020, Democrats introduced the “Federal Reserve Racial and Economic Equity Act.” Then, in 2021, pundits and politicians were telling us that it’s the Fed’s job to “combat climate change.” These are just the latest efforts to use the enormously powerful central bank to achieve political ends to the liking of elected officials.

This is a helpful reminder, of course, that the Fed is not independent from politics. The Federal Reserve has never been politically independent, and it certainly isn’t so now. Fed independence is a fairy tale academic economists like to tell their students. The debate over new mandates has also highlighted the fact the Fed already has no fewer than three mandates explicitly written into law: moderate long term interest rates, maximum employment, and stable prices.

In practice, however, the Fed has only two mandates because the Fed is so limited in what it can do to target long term interest rates in a global marketplace. This has led to what is now a de facto “dual mandate.”

This dual mandate is now all about maximizing employment while also maintaining “stable prices.” What this all means is never precisely spelled out in policy or law. It also changes over time. zero-percent CPI inflation was once the goal. Now the goal is the arbitrary two-percent standard. Similarly, what is meant by “maximum employment” is subject to the...

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