Why a Dual Mandate is Right for Monetary Policy

The overflow crowd packed into the Senate’s largest hearing room – not the usual home of the Financial Services Committee – fell into a hush as the Chairman of the Federal Reserve Board made his entrance and took the centre seat at the witness table, accompanied by all six of his fellow Board Members. The crowd had a sullen look. The Senators seated around the dais’s three tiers appeared angry. The US economy had been spiralling downward for ten months in the wake of the mortgage market collapse and the steep decline in home prices. Two sizeable commercial banks and seven investment banks had failed, and many of the rest had had to raise capital on highly unfavourable terms. Investors in many uninsured financial instruments still could not get their money back. Not just home mortgage defaults