Inflation targeting is a monetary policy strategy used by central banks to maintain price stability by setting a specific inflation rate as their goal. This approach helps guide expectations for inflation, allowing businesses and consumers to make informed financial decisions. Central banks, like the Federal Reserve in the United States, adjust interest rates and other monetary tools to achieve this target. By clearly communicating their inflation goals, central banks can enhance transparency and accountability. This method aims to reduce uncertainty in the economy, fostering a stable environment for growth and investment. Successful inflation targeting can lead to lower inflation rates and improved economic performance over time.