Three goals, one "dual mandate", and the Fed explains the discrepancy itself. 12 USC 225a directs the Board and the Committee to conduct policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Nearly every account of the Fed says "dual mandate" without noticing that the statute names three things. The Fed's own explanation, in its published account of monetary policy goals, is that "even though the act lists three distinct goals of monetary policy, the Fed's mandate for monetary policy is commonly known as the dual mandate," because an economy with people employed and prices stable "creates the conditions needed for interest rates to settle at moderate levels." The third goal is treated as an outcome of the first two rather than as a separate lever, which is why it never appears in the commentary.
The inflation goal is 2 percent on PCE, and the index matters. The Statement on Longer-Run Goals and Monetary Policy Strategy, adopted effective January 24, 2012 and reaffirmed effective January 27, 2026, says the Committee "reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run" with the mandate. That index is compiled by the Bureau of Economic Analysis, not by the Bureau of Labor Statistics, and it is built differently from the Consumer Price Index: it covers a broader set of expenditures, including those made on a household's behalf, and its weights update as spending patterns shift. The two measures usually move together and usually differ, so a reader comparing a CPI print with the 2 percent goal is comparing the wrong series against it.
There is no numerical employment target, and the reason is stated rather than implied. The same statement says the Committee views maximum employment as "the highest level of employment that can be achieved on a sustained basis in a context of price stability," that the level "is not directly measurable and changes over time owing largely to nonmonetary factors," and that it would therefore "not be appropriate to specify a fixed goal for employment." So the asymmetry between a precise inflation number and a judgment-based employment assessment is deliberate. The statement also commits the Committee to review the principles each January and to undertake "roughly every 5 years a thorough public review" of its strategy, tools and communication practices.
Who decides, which is more specific than "the Fed". 12 USC 263 creates the Federal Open Market Committee and gives it the Board's members plus five representatives of the Reserve Banks, who must be presidents or first vice presidents. The statute fixes how those five are chosen: New York's board of directors elects one, and the remaining four are elected by four fixed groups of the other eleven Reserve Banks, annually. The result is that New York always has a vote and the other eleven presidents rotate through four seats. The Fed adds the part the statute does not: all twelve Reserve Bank presidents attend and participate in the discussion, and only those who are Committee members at the time may vote. The statute requires meetings "at least four times each year"; the Committee in practice holds eight regularly scheduled meetings, and more if needed.
The Board of Governors, and what makes it unusual. 12 USC 241 provides for seven members appointed by the President with Senate confirmation, for terms of fourteen years, with not more than one selected from any single Reserve district. Fourteen-year terms that outlast any presidency, staggered so that they expire in different years, are the structural feature intended to insulate policy decisions from the electoral cycle. The Chair is one of the seven governors serving a separate, shorter term in that role.
Two bodies, two rates, and this is where the shorthand misleads. When headlines say the Fed changed rates, two distinct decisions are usually being compressed. The Federal Open Market Committee directs the Open Market Desk to keep the federal funds rate within a target range. Separately, and on its own authority, the Board of Governors sets the interest rate paid on reserve balances and approves the primary credit rate charged to banks borrowing at the discount window. Under 12 USC 357 each Reserve Bank establishes its discount rates "subject to review and determination of the Board of Governors," and must do so "every fourteen days, or oftener if deemed necessary." Note that the discount window's rate is a lending rate for banks and has nothing to do with the discount rate used to convert future dollars into present value, which is a different concept sharing a name.
What the Federal Reserve is not. It does not insure bank deposits, which is the Federal Deposit Insurance Corporation's job. It does not set fiscal policy, tax rates, or the federal budget. It does not set the rate on a mortgage or a credit card, though it strongly influences both. And its independence is operational rather than absolute: Congress created it, defines its goals by statute, and can amend them.
