Fed’s goals

Fed’s primary goal of price stability
Unexpected swings in the inflation rate bring costs for borrowers and lenders and employers and workers. In general, an inflation rate between 0 - 3% a year is seen as being consistent with price level stability.

Price stability => real wages/ interest rate close to the expected value => reduce uncertainty => encourage to save and invest => strengthen economy

Fed’s secondary goal of sustainable GDP real growth close to potential GDP
Whether or not that growth is sustainable depends upon other factors such as:

• technological advances
• availability of natural resources
• the willingness of people to work
• the willingness of people to invest
• political stability.

Intermediate targets of monetary policy include:

• M1 growth rate
• M2 growth rate
• Growth rate of monetary base
• Federal funds rate