Describe the objectives of U.S. monetary policy, the framework for achieving those objectives, and the Fed’s monetary policy actions.
The Federal Reserve Act requires the Fed to use monetary policy to achieve the “dual mandate” of maximum employment and stable prices.
The Fed’s goals can come into conflict in the short run.
The Fed translates the goal of stable prices as a core inflation rate of between 1 and 2 percent a year.
The Fed’s monetary policy instrument is the federal funds rate.
The Fed sets the federal funds rate at the level that makes its forecast of inflation and other goals equal to their targets.
The Fed hits its federal funds rate target by using open market operations and in times of financial ...