What it is
The Federal Reserve operates under a "dual mandate" established by Congress. This directive requires the Fed to pursue two primary economic goals: achieving maximum sustainable employment and maintaining price stability. Maximum employment means the economy is producing at its full potential without creating undue inflationary pressures. Price stability means keeping inflation at a low and predictable level, typically targeted at 2% over the longer run, to preserve the purchasing power of the dollar.
The dual mandate guides the Federal Open Market Committee (FOMC) in its monetary policy decisions. When unemployment is high, the Fed might lower interest rates to stimulate job growth, while high inflation might prompt rate hikes to cool the economy. Balancing these two goals can be challenging, especially during periods of "stagflation" (high inflation and high unemployment). Investors watch for how the Fed prioritizes these goals, as it dictates the direction of monetary policy.
Why it matters
The Fed's dual mandate explains why it makes certain policy decisions, directly impacting interest rates, inflation, and job growth, affecting your finances.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice