a real interest rate sufficiently negative to provide stimulus during economic downturns. among advanced economies ( those with a high level of per capita gdp and globally integrated financial markets ), all central banks have a mandate of price stability with a numerical objective. most have 2 percent as either the target or the midpoint of a target range. maximum employment : evolution and international comparisons although other advanced - economy central banks do not have a dual mandate like the fed, most of them explicitly or implicitly consider employment or economic activity in their setting of monetary policy. statutorily, employment is often a secondary mandate to price stability. functionally, these other central banks tend to describe the outlook for employment as affecting the speed with which they attempt to return inflation to their target. for instance, if there is a shock that raises inflation above the target at a time when the unemployment rate is also high, such a central bank would tighten policy less than if its only objective was to move inflation back to that target as quickly as possible. this way of operationalizing inflation targeting implies that there is a significant weight on employment in monetary policy decisions. one reason is possible upward bias in measures of inflation, having to do with substitution, quality adjustments, and the introduction of new products. in addition, the downward rigidity of nominal wages ( and some prices ) implies that a positive inflation target allows more scope for adjustment of relative prices needed to send price signals in the economy. - 6in the case of the united states, the difference is that congress made the fed ’ s employment mandate more explicit. employment was always mentioned as an objective of the fed, but the 1977 amendment to the federal reserve act made it part of the main u. s. law applying to monetary policy. the fed has not set a numerical target for its mandate of maximum employment. the unemployment rate is a key variable in evaluating progress toward that goal. economists have a concept of the natural rate of unemployment, sometimes called u *, defined as the rate of unemployment compatible with a steady inflation rate. but u * cannot be directly measured and is only imprecisely estimated. moreover, it likely changes over time as the structure of the economy evolves. the aggregate unemployment rate is also not the only consideration in determining whether we are meeting our maximum - employment goal. labor force participation also matters, as well as other elements of the labor market that i will discuss later. monetary policy tradeoffs how should we think about the tradeoff between our two goals?

policy studies and on the occasion of the seventy - fifth anniversary of the woodrow wilson school of public and international affairs, princeton university, princeton, n. j., february 24, https : / / www. federalreserve. gov / newsevents / speech / bernanke20060224a. htm. greenspan made the remark during the july 2 – 3, 1996, fomc meeting, the transcript of which is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / files / fomc19960703meeting. pdf. - 4to a well - functioning and growing economy. low and stable inflation reduces uncertainty about future prices and business conditions, promoting a favorable environment for investment in productive capacity and human potential. price stability means avoiding periods of high inflation, which are a particular burden on those who are disadvantaged and least able to bear it. the costs of inflation were described by many community members in the fed listens events that the federal reserve has held in the past couple of years. price stability also creates the conditions for a sustainably strong labor market. if inflation fluctuates a lot, it may require a more forceful monetary policy response, and the process of reining in inflation can contribute to bouts of higher unemployment. in contrast, price stability provides a background against which employment can rise more steadily, which is why well - anchored inflation expectations are so important. price stability : evolution and international comparisons while the fed has considered price stability a key objective for its entire 110 - year history and the 1977 amendment made price stability an official goal in the federal reserve act, a specific numerical objective for inflation is a relatively recent development. the breakthrough came in january 2012, when the monetary policymakers who make up the federal open market committee ( fomc ) stated that they judge that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures ( pce ), is most consistent with the federal reserve ’ s mandate of maximum employment and price stability. - 5there were a few reasons to set an inflation of target of 2 percent, rather than zero. 9 near - zero inflation can slide into sustained deflation, which is often associated with significant job losses, and debt burdens increase when prices are falling. a positive inflation target also allows the central bank more room to adjust its nominal policy rate to achieve