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Central Banking With a Straight Face
How often have you heard that the US Federal Reserve has a dual mandate to promote both price stability and maximum employment? Did you know that the claim is false? Under the Federal Reserve Reform Act of 1977, the Fed also has a third mandate: to ensure moderate long-term interest rates. There is nothing unusual about this objective. Central banks over the years have sought to prevent sudden increases in government bond yields. In the 1930s, for example, the US Treasury wanted the Fed to cap bond yields, leading to a compromise whereby the Fed agreed to maintain orderly market conditions. Even the landmark ... (full story)