Part 2/13:
To understand the brewing storm, it's essential to grasp the core mission of the Federal Reserve. The Fed operates under a dual mandate: to keep inflation around 2% and maintain full employment—typically pegged at a 4% unemployment rate. These goals require orchestrating interest rate policies that influence the economy’s money supply and activity.
Inflation control aims to prevent prices from rising too quickly, while employment levels strive to keep people actively engaged in the workforce. Historically, lower interest rates stimulate growth and employment but risk inflation spirals, whereas higher rates curb inflation but may lead to higher unemployment and sluggish growth. Balance is key.