A duel man-date is when two guys get burgers together, realize they like the same girl, then fight.

Possibly correct, but a dual mandate has slightly different spelling and vastly different meaning.

What is a Dual Mandate?

The Fed (Federal Reserve) has what is called a dual mandate. They are responsible for:

1. Promoting maximum employment (so we all can have jobs if we want them).

2. Promoting stable prices (so a Starbucks latte doesn’t cost $9 tomorrow morning).

As such, the Fed needs to walk a fine line between promoting full employment and preventing inflation.

The Fine Line: When to Change Rates

The Fed lowers the Fed Funds rate to stimulate the economy. They look to do this when they economy is faltering.

The Fed raises the Fed funds rate to cool down growth in the economy. They look to do this when the economy is stronger.

How Do Higher Fed Funds Rates Cool the Economy?

Simple Answer: It makes people spend less and save more.

Why? When rates go up, it become more attractive to keep money in a bank. When you keep money in a bank, you don’t spend it. When you don’t spend money, Walmart isn’t as busy. Then Walmart lays off some employees. Those people start spending less. And the cycle continues.

This has a dampening effect upon the economy.

The opposite cycle starts when the Fed lowers the Funds Rate.

That wasn’t too painful was it?

Related Articles: What is a Goldilocks Economy?