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Economic Review

Jul/Aug, 1984

The Fed's Mandate: Help or Hindrance?

Robert P. Black

The Federal Reserve System is faced with a myriad of objectives in the area of monetary policy: some people believe the Fed should use monetary policy to keep interest rates low, other think the primary goal should be to increase business activity and decrease unemployment, and still others feel the Fed’s proper role is to promote price stability. In his speech, "The Fed's Mandate: Help or Hindrance?", Federal Reserve Bank of Richmond President Robert P. Black argues that this multitude of objectives weakens monetary policy by preventing the Fed from pursuing a more limited but more attainable long-run program.

Black asserts that, contrary to popular belief, the present abundance of objectives decreases the Fed's independence by subjecting it to intense pressures from competing interest groups, each advocating one particular goal. Price stability, he contends, is the only feasible long-run objective for monetary policy. Black concludes by saying that the best way to achieve permanent price stability is to lower the growth rate of the money supply to a steady noninflationary rate and keep it there.

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