The way to ensure stability and growth seems self-evident: The country needs full employment, low inflation, and stable interest rates. But here’s the rub:
Full employment contributes to inflation, as employers raise salaries to attract and keep workers
Inflation can best be controlled by high interest rates — a policy called tight money, which takes money out of circulation
Tight money reduces borrowing and limits growth, resulting in increasing unemployment, which depresses growth even further
That’s where the Federal Reserve System,
in particular the Chairman, the Board of Governors, and the
Open
Market Committee (FOMC),
come in. In order to keep the economy
on track, the Fed must decide which of these potentially conflicting
goals — controlled inflation, stable interest rates, full
employment — should take precedence at any given time.
Anthony Santomero,
Federal Reserve
Bank of Philadelphia
Anthony Santomero, 
