The Fed’s dual mandate of “maximum employment” and “stable prices” is in the news again. At the recent presidential debate, the major Republican candidates made the case for repealing the dual mandate, while the President of the Federal Reserve Bank of Chicago, Charles Evans, made the case for doubling down on it.
It’s an important issue to understand and discuss. In my Bloomberg News article yesterday, I argued that history indicates that removing the dual mandate will actually help lower unemployment by reducing discretionary interventions and encouraging more predictable rule-like policy.
In this regard the frequently used terms monetary “hawk” and “dove” are quite misleading. A hawk is usually defined as someone who would like the Fed to focus on long run price stability. But according to the evidence I discuss in my article, such a focus would better characterize a dove in that unemployment would be lower not higher.