What is the primary goal of monetary policy?

The primary goal of monetary policy is to ensure price stability. Price stability refers to a situation where prices in the economy do not fluctuate significantly over time, reducing uncertainty in economic decision-making for consumers and businesses. When prices are stable, it encourages investment and spending, promoting economic growth.

Central banks, like the Federal Reserve in the United States, implement monetary policy primarily through tools such as interest rates and open market operations to influence the availability and cost of money in the economy. By maintaining price stability, central banks aim to create a favorable economic environment that supports employment and overall economic health.

While controlling inflation rates is related to price stability, it is a more specific aspect of the broader goal, as inflation often disrupts price stability. Reducing government debt and increasing government spending are fiscal policy objectives rather than monetary policy goals, as they pertain to government budgets and expenditures rather than the management of money supply and interest rates.