Blog: The Fed's Dueling Mandates and Stagflation

Virtually every FOMC rate announcement contains this phrase which related to their mandate from Congress:

" The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run."

In most economic scenarios these goals are compatible. Inflation is low when the economy is weak and unemployment is high. So the Fed can cut rates, thus increasing demand and stimulating the economy so unemployment can fall. The reverse is true for the scenario where the Fed raises rates.