What is one of the main objectives of monetary policy?

One of the main objectives of monetary policy is to control inflation levels. Central banks, such as the Federal Reserve in the United States, implement monetary policy primarily to ensure price stability, which involves managing the inflation rate within a target range. Controlling inflation is crucial because excessive inflation can erode purchasing power and create uncertainty in the economy, while deflation can lead to reduced spending and economic stagnation.

By using tools such as interest rates and open market operations, central banks can influence the money supply and demand within the economy. For instance, raising interest rates typically cools down economic activity and helps reduce inflation, while lowering rates can stimulate borrowing and spending, potentially fueling inflation. Ultimately, maintaining stable inflation aligns with fostering a conducive environment for sustainable economic growth, which is a core goal of monetary policy.