What is the basic legal framework that determines the conduct of monetary policy?
Congress established a basic legal framework for the conduct of monetary policy that involves three key pillars:
- statutory long-run economic objectives for the conduct of monetary policy—maximum employment and stable prices
- a structure for the Federal Reserve System that provides for a significant degree of operational independence in the conduct of monetary policy
- mechanisms to ensure appropriate transparency and accountability of the Federal Reserve to the Congress and the American people in the conduct of monetary policy
This basic framework of statutory objectives, operational independence, and mechanisms to ensure transparency and accountability now governs the conduct of monetary policy by all major central banks around the world and is commonly viewed as a best practice for central banking.
Beyond this overarching policy framework, Congress also provided statutory authorities for all the Fed's key policy tools, including open market operations, the payment of interest on reserves, lending operations, and reserve requirements.