The Fed's new global mandate is not without risk

If the US Federal Reserve feels beholden to financial markets, the risk of sharper rate hikes will increase

"There are only two tragedies in life," Oscar Wilde wrote. "One is not getting what one wants, and the other is getting it." As the US Federal Reserve inches closer to achieving its targets for the domestic economy, it faces growing pressure to normalise monetary policy. But the domestic economy is no longer the Fed's sole consideration in policymaking. On the contrary, America's monetary authority has all but explicitly recognised a new mandate: promoting global financial stability.

The US Congress created the Fed in 1913 as an independent agency removed from partisan politics, tasked with ensuring domestic price stability and maximising domestic employment. Its role has expanded over time, and the Fed, along with many of its developed country counterparts, has engaged in increasingly unconventional monetary policy - quantitative easing, credit easing, forward guidance, and so on - since the 2008 global financial crisis.