Congress has mandated that the Federal Reserve set monetary policy so as to promote price stability and maximum employment. In my view, the heart of implementing the price stability mandate is to formulate and communicate an objective for inflation. The central bank then fulfills its price stability mandate by making choices over time so as to keep inflation close to that objective.
Hancock, Diana, and Wayne Passmore (2011). “Did the Federal Reserve’s MBS Purchase Program Lower Mortgage Rates?” Journal of Monetary Economics, vol.58 (July), pp.498–514. Kiley, Michael (2012). “The Aggregate Demand Effects of Short- and Long-Term Interest Rates,” Finance and Economics Discussion Series 2012–54. Washington: Board of Governors of the Federal Reserve System, August. Kim, Don H., and Jonathan H. Wright (2005).