Some economists have argued that Congress should strike the goals of maximum employment and moderate long-term interest rates from the current mandate, leaving price stability as the only mandated goal. Often the proposal for a single mandate is paired with a more specific proposal that the Fed should adopt an inflation target. Under an inflation target, monetary policy would aim to achieve a predefined numerical target or range for some measure of inflation (the change in the general price level). The bill would also replace current semi-annual "Humphrey-Hawkins" reporting requirements to Congress, which call for "a discussion of the conduct of monetary policy and economic developments and prospects for the future, taking into account past and prospective developments in employment, unemployment, production, investment, real income, productivity, exchange rates, international trade and payments, and prices," with reporting requirements on "whether the goal of long-term price stability is being met and, if such goal is not being met, an explanation of why the goal is not being met and the steps that the Board and the Federal Open Market Committee will take to ensure that the goal will be met in the future…," as well as a description of the instruments used and strategy employed to achieve price stability, and the effect of monetary policy on the exchange rate value of the dollar. Were a single mandate to be adopted in the United States, it would follow an international trend that has seen many foreign central banks, including those of New Zealand, Canada, Australia, and the United Kingdom, adopt price stability mandates, inflation targets, or both in recent decades. In January 2012, the Fed voluntarily announced a "longer-run goal for inflation" of 2%, as measured by the annual change in the price index for personal consumption expenditures. Because it is a part of a strategy for achieving statutory goals, it could be codified through legislation or voluntarily adopted internally by the Fed. Although many proponents of inflation targeting also favor a single mandate, an inflation target could also be adopted without changing the current mandate. Has the Fed Already Adopted An Inflation Target? In this case, inflation was lower than desired. Oversight and accountability would improve under a single mandate, according to proponents, because it would make it easier to evaluate the Fed's performance, particularly if the single mandate included an inflation target. H.R. 1174 / S. 238 requires the Fed to consider asset prices in its inflation target. Nevertheless, as long as the Fed is given discretion to pursue policies that it believes are consistent with price stability, it seems doubtful that a single mandate would have prevented the Fed from pursuing price stability. It is not clear that the short-term cost of creating higher inflation or deflation to return to the planned price level path is worth the benefits. A Point Estimate or a Range? Conclusion

A single mandate or inflation target may constrain the Fed's ability to pursue policies that result in high inflation, but in practice Fed policies over the past two decades have not resulted in high inflation. Since the recent financial crisis, however, the problem has generally been modestly lower-than-desired inflation. An inflation target could potentially have more of an impact on the Fed's discretion, but the extent that its discretion would be constrained would depend on the characteristics of the inflation targeting regime, such as what consequences there would be if the target were missed, and whether the inflation target was selected and designed by the Fed or by Congress. Arguments in favor of an inflation target and single mandate include improved accountability of monetary policymakers and increased transparency of monetary policy to financial markets. Some of the desire for legislative change comes from discontent with the Fed's recent performance. Criticism that the Fed should have done more to prevent the depth and length of the recession implicitly speaks to the "maximum employment" part of the dual mandate, and so it does not follow that a single mandate of price stability would result in more aggressive countercyclical policy. A similar argument applies to criticisms that the Fed's program of quantitative easing is inconsistent with a price stability mandate—the Fed believes that quantitative easing is necessary to maintain price stability (to avoid deflation), and as long as the Fed has discretion to set its policies, a single mandate would not prevent quantitative easing.
The Federal Reserve's (Fed's) current statutory mandate calls for it to "promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Some economists have argued that this mandate should be replaced with a single mandate of price stability. Often the proposal for a single mandate is paired with a more specific proposal that the Fed should adopt an inflation target. Under an inflation target, the goal of monetary policy would be to achieve an explicit, numerical target or range for some measure of price inflation. Inflation targets could be required by Congress or voluntarily adopted by the Fed as a way to pursue price stability, or a single mandate could be adopted without an inflation target. Alternatively, an inflation target could be adopted under the current mandate. In January 2012, the Fed voluntarily introduced a "longer-run goal for inflation" of 2%, which some might consider an inflation target.
In the 113th Congress, H.R. 1174/S. 238 and S. 215 would strike the goal of maximum employment from the mandate, leaving a single goal of price stability, and require the Fed to adopt an inflation target. Were a single mandate to be adopted in the United States, it would follow an international trend that has seen many foreign central banks adopt single mandates or inflation targets in recent decades.
Arguments made in favor of a price stability mandate are that it would better ensure that inflation was low and stable; increase the predictability of monetary policy for financial markets; narrow the potential to pursue monetary policies with short-term political benefits but long-term costs; remove statutory goals that the Fed has no control over in the long run; limit policy discretion; and increase transparency, oversight, accountability, and credibility. Defenders of the current mandate argue that the Fed has already delivered low and stable inflation for the past two decades, unemployment is a valid statutory goal since it is influenced by monetary policy in the short run, and discretion is desirable to respond to unforeseen economic shocks. A case could also be made that changing the mandate alone would not significantly alter policymaking, because Fed discretion, transparency, oversight, and credibility are mostly influenced by other factors, such as the Fed's political independence.
Discontent with the Fed's performance in recent years has led to calls for legislative change. It is not clear that a single mandate would have altered its decision making, however. Criticizing the Fed for the depth and length of the recession arguably leads to the prescription that monetary policy should have been more stimulative, which points to greater weight on the employment part of the dual mandate. Whether or not the Fed allowed the housing bubble to inflate, it is not clear that a single mandate would have changed matters because the housing bubble did not result in indisputably higher inflation. Some economists believe that the Fed's recent policy of "quantitative easing" (large-scale asset purchases) will result in high inflation. Inflation has not increased to date, but even if these economists are correct, the Fed has discretion to pursue policies it believes are consistent with its mandate. It has argued that quantitative easing was necessary to maintain price stability by avoiding price deflation, and it could still make this argument under a single mandate. Since the recent financial crisis, the problem has generally been modestly lower-than-desired inflation.
This report discusses a number of implementation issues surrounding an inflation target. These include what rate of inflation to target, what inflation measure to use, whether to set a point target or range, and what penalties to impose if a target is missed.