What is the primary goal of the Federal Reserve?

The primary goal of the Federal Reserve is to maintain price stability and maximum employment. This dual mandate reflects the Fed's role in promoting a healthy economy. Price stability refers to controlling inflation and ensuring that prices remain stable, which is essential for consumer and business confidence. When inflation is too high, it erodes purchasing power, while deflation can lead to decreased consumer spending and economic stagnation.

Maximum employment refers to the Fed's efforts to create conditions that foster high levels of employment. The central bank monitors labor market conditions and uses its monetary policy tools, such as adjusting interest rates, to influence economic activity, thereby helping to achieve optimal employment levels. By focusing on these two main objectives, the Federal Reserve aims to create an environment that supports sustainable economic growth.

In contrast, ensuring a balanced budget deals more directly with fiscal policy and government spending, which is outside the Federal Reserve's primary functions. Regulating international trade and eliminating all forms of taxation are beyond the scope of the Fed's responsibilities as well, which center on monetary policy and the stability of the financial system.