Fed Dual Mandate Under Threat if Taper Begins

Fed chairman Ben Bernanke has defined the purpose of the asset purchases as “to increase the economy’s near-term momentum,” with the goal of improving the labor market and price stability. This would reflect the key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates.

But the reality is that the current structural unemployment does not make possible full employment; price development is deflationary, or disinflationary; and interest rates have been kept historically low while moderation has been achieved through nontraditional monetary policies.

Nonetheless, the Fed will begin tapering, despite the ailing labor market. In the process, its postwar dual mandate—full employment and low inflation—will crumble.

via CNBC

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