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Comparing The Two Primary Mandates Of The Federal Reserve

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- What are the two primary mandates of the Federal Reserve? “…so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”[1] The two primary mandates, sometimes referred to as the Dual Mandate, would be maximum employment and stable prices. The goal of long-term interest rates is somewhat dealt with when an attempt is made towards stable prices. The Fed is often aiming to achieve a goal of maximum employment or near-zero unemployment. However, the goal of maximum employment conflicts with the goal of stable prices. Usually, the Fed aims to reduce prices, but that usually causes unemployment to rise. Generally, attempts are made to guarantee that there aren’t any significant price drops or increases. [2] - Is the Federal Reserve able to purchase private banks/enterprises? …show more content…

The cases that indicate a purchasing decision seem to be aimed towards bailouts. The Federal Reserve usually provides loans to the banks or firms during tough economic times. However, there are multiple conditions that are aimed to prevent risk. The Federal Reserve can only aid solvent (long-term stability) financial institutions/firms. [3] In addition, “The Fed would also be prohibited from giving loans to solvent companies that would then be passed on to insolvent ones.” [4] Aid will not be provided to a firm hasn’t paid its debt in the past 3 months. [4] The Federal Reserve can’t provide loans to individual financial institutions; “Under the rule, the Fed can make emergency loans that can potentially be used by at least five companies…” [5] There must be “…explicit justification for broad-based bailouts.”

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Through its tools of open market operation, the Federal Reserve manages monetary policies in the economy. To encourage investment/borrowing, the Federal Reserve lowers interest rates. To fight the impact the financial crisis in 2010, the

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