The Fed's ultimate goal is to create a financial
environment that fosters maximum economic growth and full employment
over the long term. And it sees keeping inflation low as its primary contribution
to achieving that goal.
Maintaining price stability is crucial to a well-functioning
market economy. If prices are stable, people will be able to recognize
shifts in relative prices, and adjust their decisions about spending,
saving, working, and investing in ways that enhance their personal
welfare. Inflation, by contrast, jumbles and distorts these price
shifts and may generate bad economic decisions.
Keeping prices stable also helps keep long-term
interest rates — the price of credit — low and stable.
The only way to achieve stable prices and
the full employment and economic
growth that stable prices promote
is through monetary policy. That’s what the Fed does.
Anthony Santomero,
Federal Reserve
Bank of Philadelphia
Anthony Santomero, 