Final answer:
The Federal Reserve has faced criticism for not always keeping prices stable due to the historical variance in inflation rates and the economic recessions that have occurred during efforts to manage inflation. The lack of clear guidance in the Fed's mandate and the difficult balance of conflicting economic goals add to the challenges of maintaining price stability while also fostering growth.
Step-by-step explanation:
The evidence for saying that the Federal Reserve has failed at its mission to keep prices stable can be seen in the historical oscillation of inflation rates, particularly during and after the tenures of Fed Chairs Paul Volcker, Alan Greenspan, and into the era of Ben Bernanke. For instance, under Volcker's leadership, interest rates were significantly increased in an effort to control inflation, which did lead to a short-term recession and raised questions about the dual mandate of price stability versus economic growth. Despite challenges, the long-term effect of Volcker's policy was a reduction in inflation, laying the groundwork for future economic stability.
The original charter of the Federal Reserve did not provide exact instructions for balancing conflicting economic goals, such as closing recessionary gaps and spurring growth while maintaining steady prices. The lack of specific guidance means the Fed makes determinations based on the economic context at hand. During Greenspan's tenure, rates were lowered to spur economic growth, which sometimes led to criticism that this contributed to financial bubbles, like the sub-prime mortgage crisis.
While monetary policy has been a tool for stabilizing the economy, the Fed's efforts in different periods, such as the introduction of open-market operations by Greenspan during a recession in the 1990s, demonstrate the complex nature of its objectives. Persistent low inflation was seen as a legacy of Volcker's and Greenspan's tenures, which was expected to aid subsequent Fed Chairs in maintaining economic stability. However, there were various controversies regarding whether the Fed should intervene in what some saw as asset price bubbles in the stock and housing markets.