The Fed’s balancing act

THE Federal Reserve’s “dual mandate” is to keep inflation low and make sure that the maximum number of people are employed in America. But the central bank is also tasked to supervise and regulate banks, and provide payment services in order to help maintain the stability of the financial system.

This month, the US central bank found itself trying to balance its macroeconomic job of keeping inflation under control by raising interest rates – which raises the cost of borrowing – and the task of ensuring that the banking system remains safe when financial institutions come close to failing. And it seems to have been doing a good job at pursuing those two somewhat contradictory missions – of, on one hand, slowing economic growth and, on the other hand, responding quickly when the economy comes under pressure.

On Wednesday (Mar 23) the Federal Open Market Committee went ahead with a quarter-point increase in the fed funds rate as part of its efforts to slow down the economy and lower the inflation rate.