Federal Reserve Dual Objectives and Conventional Monetary Policy Tools: A Review of Theory, Practice and Limitations

After the 2008 financial crisis, the Federal Reserve gradually refined its statutory dual-mandate framework of price stability and full employment, adopted a single inflation target and later an average inflation target, and returned to a traditional balance framework in 2025. Conventional interest rate tools have always been the core of its macroeconomic adjustment. At present, the global economy is increasingly volatile, and liquidity traps, high inflation and employment imbalances appear alternately. The regulation efficiency and application boundary of conventional benchmark interest rate regulation have become the focus of macro financial research. This paper adopts a literature review approach to systematically trace the evolution of the Federal Reserve's dual-mandate system, dismantle the operation logic of conventional monetary policy tools such as the federal funds rate, and review the practice of three rounds of target framework reform in 2012, 2020 and 2025 in stages to compare the regulatory effects of conventional interest rate tools under different economic cycles. The findings are as follows: conventional interest rate tools can effectively balance dual targets in the stage of moderate inflation and stable economic operation, but there are significant regulatory weaknesses in the scenario of zero lower bound interest rate and supply-shock inflation, compared with the policy objectives of major central banks in the world, there is a significant institutional difference between the Dual employment-first target mode of the Federal Reserve and the single inflation target of many countries. This paper summarizes the policy practice experience and system defects of the Federal Reserve, clarifies the applicable conditions and limitations of conventional monetary policy tools, and provides theoretical and practical reference for China to improve the framework of monetary policy regulation and stabilize prices and employment.