In the latest report, real gross domestic product (GDP) increased 2.2 percent at an annual rate in the first quarter of 2018, a slowdown from the 3 percent pace in the final three quarters of 2017. The first-quarter slowdown was especially noticeable in consumer spending, which increased at only a 1 percent pace last quarter, compared with 2-3/4 percent in 2017.
The same tendency is now evident among a growing number of emerging-market economies that have recently moved to flexible exchange rates following the collapse of their pegged rates. The objective is to consistently maintain low and stable inflation, while the flexible exchange rate helps the economy to adjust to shocks. Why inflation targets and how do they work to guide monetary policy?