MTC Market Compass

December 2025

The Fed’s Dual Mandate & Key Policy Levers

The U.S. central bank, the Federal Reserve (“the Fed”), is tasked with balancing price stability (inflation) and maximum sustainable employment. The Fed has a number of tools to achieve the desired balance, most notably: the setting of short-term interest rates (often referred to as yields) through its Federal Funds Rate and maintaining its balance sheet of longer-dated bonds. The levers allow the Fed to influence interest rates, while other market participants, through the buying and selling of fixed income securities (aka bonds), also play a key role in the various yields we see in markets.