The major objective of the central bank in an economy is to maintain price stability in the market. The price stability can be managed only when the central bank is adjusting the interest rates in response to the external factors like the inflation rate, GDP growth rate, Unemployment. The major objective of central bank is price stability but at the same time it also has to make sure that the monetary policies are in line to promote the economic growth and overall being of the people. In every federal open market committee meeting the interest rate is decided by the committee and adjusted accordingly in line with the expected inflation rate, GDP growth rate, the market sentiment and unemployment rate. The price stability does not mean that interest rate should be fixed rather the increase in price should be justifiable enough to push for more productivity and the rise in inflation should not be beyond a point. Mild inflation is good for the economy, it increases the productivity but too much inflation can erode the purchasing power of the currency so price stability can only be achieved if the interest rate in the economy are adjusted in response to the external factors in the economy.