al Reserve System's mandate has been broadened to include the maintenance of the following: economic stability in the country, high levels of employment, stability in the purchasing power of the dollar, and a reasonable balance of payments with respect to international transactions (Broaddus, 1988, pp. 3-5). The mandate established by the Congress for the Federal Reserve System in effect establishes the agency's basic monetary policy objectives (Anderson, 1985, p. 20). Within the context of these Congressionally mandated objectives, the Board of Governors establishes specific long-term and short term goals designed to assure attainment of the basic objectives.
In the early-years of the Federal Reserve System, the basic policy objective was the preservation of the value of the dollar through the protection of the gold standard (Anderson, 1985, p. 24). This policy mandate was gradually expanded to include the maintenance of reasonable interest rate levels, safeguarding the quality of credit, and the prevention of an excessive use of credit for nonproductive purposes--especially speculation.
The country's experience with the severe and prolonged recession of the 1930s brought about major changes in the policy mandate for the Federal Reserve System. By the end of the Second World War, the objectives for the System were the maintenance of economic stability, the maintenance of full employment, and the promotion of economic growth (Board of Governors, Federal Reserve System, 1984, pp. 1-4).
Over the subsequent 49 years, the policy mandate has been further refined. Maximum employment, economic stability, and growth are included in the mandate (Black, 1984, p. 4). In addition to these policy goals, the Federal Reserve System is also directed by the Congress to maintain stability in prices, and seek moderate levels in long-term interest rates.
Within the agency's policy mandate, the Board of Governors
establishes specific goals....