The Fed's dual mandate dates to a 1946 act

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Thursday, November 25, 2010; 5:53 PM

George F. Will wrote in his Nov. 18 op-ed, "The Fed's dual mission impossible," that Congress gave the Federal Reserve an unworkable dual mandate in 1977 to combat both inflation and unemployment. He urged that this dual mandate be repealed and that the Fed be directed to concern itself only with preventing inflation.

Actually, the so-called dual mandate was not first enacted in 1977. Its origins can be found in the Full Employment Act of 1946, which committed the federal government to pursue the goals of "maximum employment, production and purchasing power." The Federal Reserve is clearly part of the federal government, and various Fed chairmen have acknowledged over the years that the goals of the 1946 act are applicable to the Federal Reserve.

The 1977 legislation referred to by Mr. Will was the Federal Reserve Reform Act, which among other things called upon the Fed to conduct monetary policy so as to "promote effectively the goals of maximum employment, stable prices and moderate long term interest rates." These goals are substantially equivalent to the long-standing goals contained in the 1946 Full Employment Act. The goals of the 1977 act were further affirmed in the Humphrey-Hawkins Act the following year. The legislation in no way hampered the Paul Volcker-led Fed from breaking the back of inflation through tight monetary policy in the early 1980s.

Repealing the 65-year-old mandate of the Fed to combat both inflation and unemployment would return the Federal Reserve to the disastrous policies it followed from 1929 to 1933 - policies that Milton Friedman and others have held responsible for turning a routine business-cycle downturn into the worst economic depression in our history.

Ken McLean, Arlington

The writer was director of the Senate Banking Committee staff from 1975 to 1980.


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