One of the most important jobs of the Federal Reserve is to keep our economy healthy. It does this by managing the nation’s system of money and credit—in other words, conducting monetary policy.
Experience has shown us that the economy performs well when inflation is low. When inflation is low—and is expected to remain low—interest rates are usually low as well. Such an environment fosters low unemployment and allows the economy to achieve its growth potential. Free from the disruptive effects of high and variable inflation, consumers and producers make economic decisions with confidence and wisdom.
The ability to maintain a low inflation rate is a long-term measure of the Fed’s success. To achieve this, the Fed sets a variety of intermediate targets, including monetary aggregates, reserve aggregates and interest rates, to gauge the impact of its policies on the economy.
The actions that the Fed takes today influence the economy and the inflation rate for some time to come. Consequently, policymakers must be forward-looking and must take pre-emptive action to head off inflation before it gathers momentum.
~ Federal Reserve website (frb.org), "In Plain English: Making Sense of the Federal Reserve"
(Graph of Consumer Price Index: 1800-2007)