Story 2: Federal Reserve Mandates Over Time

The Federal Reserve is an organization that sets monetary policy in the United States, influencing short term interest rates. The Federal Reserve operates under a dual mandate from Congress, aiming to achieve price stability and maximum unemployment. You can read about it here: Dual Mandate. These seem to be contradictory objectives — see this Wikipedia article on the Phillips Curve. Another good but short news article which focuses on the specific context of recessions is here: Soft Landing.

In 2020, the Federal Reserve implemented a large policy change: instead of targeting a 2% inflation rate at each point in time, it targeted a 2% inflation rate over time (this is known as Flexible Average Inflation Targeting or ‘FAIT’). This meant that if inflation had been under 2% in previous quarters, the Fed would target inflation rates above 2% for a period of time. The motivation for this change was the macroeconomic conditions of the 2010s, during which the Phillips Curve did not show the typical negative relationship between unemployment rate and inflation rate. In particular, low unemployment in the late 2010s led the Fed to expect a large increase in inflation unless interest rates were increased. These rate increases were followed by further declines in unemployment, but problems in other parts of the market forced the Fed to reverse its rate increases. The unexpected dynamics of the 2010s motivated the Fed to switch to FAIT. An excellent article written shortly after the adoption of FAIT is FAIT Accompli. In August 2025, the Fed ended the FAIT regime and has returned to an approach similar to pre-2020.

For this data story, you should create a short series of data visualizations telling the story of how the Fed has adapted policy to meet its dual mandate and whether those policies (i.e., the pre-FAIT explicit targeting and FAIT flexible targeting) were successful.

For this story you will need to source the following data for the last 30 years (you can vary this as you think is most informative):

• The Consumer Price Index (CPI) (Bureau of Labor Statistics): note that there are numerous ways to define a CPI, and you can create a custom definition on the BLS page. If you want the standard CPI it is the CPI for all Urban Consumers, or CPI-U. You can find this and other BLS datasets here: BLS Top Picks. Please remember that inflation is defined as a rate of change of CPI.

• The Fed Funds Rate (FRED) (Federal Reserve Board): This can be found here: FEDFUNDS on FRED

• Unemployment Rate (Bureau of Labor Statistics): I recommend using the seasonally adjusted rate. This can be found here: UNRATE on FRED

Additionally, you may find visual frameworks such as the one presented here (describing targeting in the pre-FAIT period) as useful templates on which to construct your data story: Chicago Fed Bullseye

Notes:

1. Use Quarto and R or Python to compose your report.
2. Remember, the Fed raises rates after reviewing the CPI and other data, and unemployment (layoffs) occurs after company operating costs go up.
3. This assignment is due at the end of week four of the semester.