The Federal Reserve targets an annual inflation rate of 2% as its definition of price stability, but deliberately avoids setting a specific numerical goal for maximum employment, according to an explainer published by the St. Louis Federal Reserve in July 2026. The piece breaks down how the Federal Open Market Committee (FOMC), the Fed's main policymaking body, interprets the dual mandate given to it by Congress and what tools it uses to achieve those objectives. The framework has evolved over time, with the most recent version outlined in the FOMC's Statement on Longer-Run Goals and Monetary Policy Strategy, reaffirmed in January 2026.

The Fed measures its 2% inflation target using the annual change in the price index for personal consumption expenditures (PCE), aiming to hit that mark over the longer run rather than every single month or quarter. The FOMC shifted away from its previous "flexible average inflation targeting" strategy, which had been adopted in 2020 after years of persistently below-target inflation and sought to make up for those shortfalls by running moderately above 2% for some time. For employment, the FOMC defines maximum employment as "the highest level of employment that can be achieved on a sustained basis in a context of price stability." The committee looks at multiple indicators to gauge labor market health, including the unemployment rate, payroll employment, and the vacancy-to-unemployed ratio, but doesn't set a specific target number for any of them.

"The maximum level of employment is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market," the statement on longer-run goals says, explaining why no fixed employment goal exists. St. Louis Fed economist Fernando Martin, who was interviewed for the piece, noted that life decisions like retiring, going to school, or becoming a homemaker can place people outside the labor force, and that the labor force itself changes over time due to demographics, immigration policies, and technological shifts. The optimal unemployment rate isn't zero because it takes time to find a job, and the official rate doesn't even include discouraged workers who've dropped out of the labor force entirely. "It's a judgment call at the end of the day," Martin said. "It's part of the art of monetary policy. There's science, but there's also art."

The FOMC adjusts its main policy tool—the target range for the federal funds rate—to influence both inflation and employment, making monetary policy accommodative to strengthen the economy when inflation is below target and unemployment is high, or restrictive to cool things down when the opposite is true. But when the two goals conflict, the committee "follows a balanced approach," weighing where inflation and employment stand relative to their goals and how long it's expected to take each to return to target. The FOMC conducts periodic reviews of its framework to incorporate lessons learned, with the most recent review concluding in 2025. New Fed Chairman Kevin Warsh has signaled more changes may be coming, announcing five task forces at his June 2026 press conference to examine current practices and propose reforms to the Fed's frameworks and communications.