The Federal Reserve Board's term to describe its goal of setting interest rates at an appropriate level. If interest rates are too low, the Fed runs the risk of inflation and price instability. If interest rates are set too high, the Fed runs the risk of pushing the economy into a recession. |
For example, if the Fed does not raise interest rates in response to rapidly rising housing prices, then there may be a risk of a housing bubble. Likewise, if the Fed raises rates too much to combat rising housing prices, the Fed runs a risk of creating a housing slump and putting the economy into recession.