You know what's not going to occur this June 23rd?

An increase in the Federal Funds rate by the Federal Open Market Committee (FOMC).

Follow around the Federal Reserve's Board of Governors and you get a sense that the Fed is making it blatently clear.  From Chairman Bernanke's testimony to Congress:

"The latest economic projections of Federal Reserve Governors and Reserve Bank presidents, which were made near the end of April, anticipate that real gross domestic product (GDP) will grow in the neighborhood of 3-1/2 percent over the course of 2010 as a whole and at a somewhat faster pace next year.  This pace of growth, were it to be realized, would probably be associated with only a slow reduction in the unemployment rate over time. In this environment, inflation is likely to remain subdued. "

To begin with let us think about what the Fed is mandated by law to do (for a wonderful speech by Frederic S. Mishkin on this):

"to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates"

This being said with the employment numbers so weak (with initial claims for unemployment insurance still around 456,000) and inflation not even poking its nasty head up to say hello, there is no way (by law) that the Federal Reserve will raise the Federal Funds rate.  With long-term inflation expectations stable and a struggling labor market why in the world would the Fed raise the interest rate?

Maybe, some should argue, that the zero bound interest rate will cause global imbalances elsewhere as investors search for the greatest yield.  This may lead to a rush of credit to fuel the next great bubble.  This leads me down the road to a third possible mandate: Financial Stability.  Financial stability is one thing, maximum employment and stable prices are certainly another.  The traditional monetary policy interest rate policy is way too blunt to deal with asset price bubbles and other threats to our economy.  So to deal with this problem, lets create a new mandate for the Fed.  Clearly I am not the first person to reach this conclusion- having first read something about this back in November of 2009:

"When it comes to redesigning monetary policy, there is disagreement as to how this might best be accomplished. Wharton finance and economics professor Franklin Allen believes more checks and balances could be built into the Federal Reserve system. “We need to have a third mandate - - a financial stability mandate,” he said."

An adaptive financial stability mandate would give the Fed power to monitor developments in the financial world and allow it to 'quickly' propose regulation to make the growth more balanced.  I know this sounds a little far fetched but why not?  If mortgage origination was such a rampant free for all, then why not have the Fed be alerted of the developments?  The Fed could theoretically be allowed to step in to find gaps in the regulation and the private sector could help:

 "A dynamic regulatory regime is most likely to be realized if it receives non-governmental perspectives on these changes. In addition to disclosing more data to investors and counterparties, exposing supervisory practices and policies to external assessment in a structured way can improve supervision. Such exposure could, for example, reduce the chances of regulators converging around a conventional wisdom that overlooks anomalous data."

If the Fed is allowed to extend credit to failing firms then it should be allowed to adaptively regulate those same firms.  For more on financial regulation, Daniel K.Tarullo of the Federal Reserves seems to be on the front lines.