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The dual mandate: maximum employment and stable prices
1977· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
Congress's 1977 instruction that the Fed pursue maximum employment and stable prices, plus moderate long-term interest rates.
See it on the Money & Finance map →How it works
After the 1970s mix of high unemployment and high inflation, Congress amended the Federal Reserve Act in 1977 to name 'maximum employment, stable prices, and moderate long-term interest rates.' Because stable prices tend to bring moderate long rates, it is called a dual mandate. The 1978 Humphrey–Hawkins Act added twice-yearly reports to Congress. 'Stable prices' became a 2% target in 2012; 'maximum employment' has no fixed number and is judged from many labor-market indicators.
Why it matters
It forces the Fed to weigh jobs against inflation. When they conflict, as in an oil shock, it must choose; the European Central Bank, by contrast, targets prices first.
Think of it like
Like managing a building for occupancy and rent growth at once: push rents too hard and vacancy rises; chase occupancy and rents lag.
Facts, rules and data
Section 2A of the Federal Reserve Act, added by the Federal Reserve Reform Act of 1977; the Fed's Statement on Longer-Run Goals, revised in 2020 and 2025.
Debates and risks
Whether one goal should rank first, and how to define maximum employment, are debated; some lawmakers have proposed a prices-only mandate.
Inside this (1)
Connections (4)
▸The dual mandate: maximum employment and stable prices sets the goals of Monetary policy: steering interest rates and creditFact, law or data
The connection
The law tells the Fed what to aim for but not how. Every policy choice is judged against two goals, maximum employment and stable prices. When unemployment is high and inflation low, the Fed cuts; when inflation runs hot, it raises rates even at some cost in jobs.
When and why
Federal Reserve Reform Act of 1977, signed by President Carter; restated in the Fed's longer-run strategy statement since 2012.
How we know
FOMC statements cite both goals, and the Fed's Statement on Longer-Run Goals explains how it balances them when they conflict.
Debates and risks
When a supply shock such as an oil spike pushes inflation up and jobs down at once, the goals collide and how to weigh them is contested.
▸The dual mandate: maximum employment and stable prices was added in 1977 to Federal Reserve Act (1913): Board and 12 regional banksFact, law or data
The connection
The 1913 law said nothing about jobs or inflation; it aimed at an elastic currency and sound banking. After the 1970s mix of high unemployment and high inflation, Congress amended it in 1977 to spell out the Fed's goals, and in 1978 required regular reports and testimony.
When and why
Federal Reserve Reform Act of 1977 (Section 2A) and the Humphrey–Hawkins Full Employment Act of 1978, Washington, D.C.
How we know
The amended text sits in Section 2A of the Federal Reserve Act, codified at 12 U.S.C. 225a.
Debates and risks
Whether the 1977 language changed Fed behavior or merely wrote down what it was already trying to do is debated by historians.
▸The 2% inflation target defines 'stable prices' in The dual mandate: maximum employment and stable pricesFact, law or data
The connection
The 1977 law says 'stable prices' but gives no number. In 2012 the FOMC interpreted it as 2% annual inflation, judging that zero would risk deflation and that price indexes slightly overstate inflation. Maximum employment, the other half, was left without a fixed number.
When and why
FOMC statement of January 25, 2012, under Chair Ben Bernanke; reaffirmed every January since.
How we know
The Statement on Longer-Run Goals and Monetary Policy Strategy states the 2% figure explicitly.
Debates and risks
Critics ask whether a self-chosen 2% honors a law that says 'stable'; FOMC transcripts show members privately discussed a 2% goal as early as 1996.
▸Unemployment and the monthly jobs report is half of The dual mandate: maximum employment and stable pricesFact, law or data
The connection
Congress tells the Fed to pursue maximum employment alongside stable prices. The jobs report is its main gauge of the first half: if unemployment rises well above sustainable levels, the Fed leans toward cutting rates; if the labor market is very tight and inflation high, toward hikes.
When and why
The 1977 Federal Reserve Reform Act and 1978 Humphrey–Hawkins Act; the FOMC reviews jobs data at each of its eight yearly meetings.
How we know
FOMC statements and minutes routinely cite unemployment and payrolls; officials' projections put the sustainable longer-run unemployment rate a little above 4%.
Debates and risks
The Fed defines maximum employment broadly, with no fixed number; how to weigh it against inflation during an oil or tariff shock is debated.