Trade-offs in Fulfilling the Fed’s Dual Mandate

Abstract: This article discusses the trade-offs and impacts of inflationary environments given the dual mandate of the Federal Reserve. High inflation creates pricing distortions and leads to a tax on liquidity. Furthermore, it has direct redistributive impacts of inflation on wages, portfolios and contracts that are preset in dollar terms. The analysis concludes that while inflationary trade-offs are complex, keeping expectations anchored is a paramount objective for the Fed, since unanchored expectations make all the other trade-offs harder to navigate.

Keywords: Dual mandate; inflation; maximum employment; inflationary trade-offs;

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Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2023-03

Volume: 23

Issue: 08