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The Role of The Fed
About This Indicator
What Does This Chart Show?
Congress's two goals for the Federal Reserve, maximum employment and stable prices, drawn as unemployment and twelve-month inflation, beside the federal funds rate the Fed moves to pursue them. Monthly since 1929.
How the Three Move Together
The Fed generally raises the rate when inflation runs too high and cuts when unemployment climbs. The goals can collide: cooling demand to slow inflation also slows hiring.
The Fed's Role and Independence
Twelve officials set the rate: seven governors, named by the President and confirmed by the Senate to fourteen-year terms, and five regional Reserve Bank presidents. The President has no vote.
Why Does It Matter?
The funds rate is what banks charge each other overnight, but credit-card, mortgage, and car-loan rates largely follow it or where markets expect it to go.
Key Idea
Rate decisions reach jobs and prices a year or more later, often under a different President or Congress: tightening from 1979 led into two recessions, one under each party. So part of what other charts credit to those in power was set by the Fed.
Source: BLS; Federal Reserve. Unemployment, the federal funds rate, and inflation from the unadjusted CPI, from the series listed above.
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