Sec. 101. Findings

348 words·~2 min read·/bill/113/s/238/is/section-101

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The Congress finds the following: Monetary policy can only affect the level of employment in the short term because nonmonetary factors determine the level of employment in the long term. At best, the Federal Reserve may temporarily increase the level of employment through monetary policy, but such efforts risk the possibility of price inflation and increased business cycle volatility in the future. However, the Federal Reserve can achieve price stability in the long term through monetary policy.

Price stability is desirable because both price inflation and price deflation damage the U.S. economy. Therefore, to maximize long-term economic growth and achieve the highest sustainable level of real output and employment, price stability should be the objective of monetary policy. Countries whose central bank has a single mandate for price stability generally have a better record of achieving stable prices than countries whose central bank has a mandate that gives equal weight to other objectives such as maximum employment or low interest rates.

In general, an overly accommodative monetary policy inflates both asset prices and prices for goods and services. However, an overly accommodative monetary policy may sometimes cause a misallocation of capital that inflates asset prices disproportionately, creating unsustainable bubbles in asset prices, while price indices for goods and services do not register significant price inflation. When asset bubbles burst, many investments must be liquidated at considerable cost to the U.S. economy in terms of lower real output and employment.

Price stability cannot always be measured solely through price indices for goods and services since such indices exclude changes in asset prices. Therefore, the Federal Reserve should monitor

(A)the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, gold and other commodities, corporate bonds, U.S. Government bonds, State and local government bonds, and other securities),

(B)the value of the U.S. dollar relative to other currencies, and

(C)the value of the United States dollar relative to gold, as metrics to determine whether the Federal Reserve’s monetary policy is consistent with long-term price stability.