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Monetary Policy Requirements

Monetary authorities are typically given policy mandates to achieve a stable rise in GDP, keep unemployment low, and maintain foreign exchange (forex) and inflation rates in a predictable range.

Monetary policy can be used in combination with or as an alternative to fiscal policy, which uses taxes, government borrowing, and spending to manage the economy.

The Federal Reserve Bank is in charge of monetary policy in the United States. The Federal Reserve (Fed) has what is commonly referred to as a "dual mandate": to achieve maximum employment while keeping inflation in check.

Simply put, it is the Fed's responsibility to balance economic growth and inflation. In addition, it aims to keep long-term interest rates relatively low. Its core role is to be the lender of last resort, providing banks with liquidity and regulatory scrutiny in order to prevent them from failing and panic spreading in the financial services sector.1

August 27, 2020

The day the Fed announced that it will no longer raise interest rates due to unemployment falling below a certain level if inflation remains low. It also changed its inflation target to an average, allowing prices to rise somewhat above its 2% target to make up for periods when it was below 2%.