This past summer, the Fed was busy worrying about inflation, especially as the cost of oil was soaring. Now, however, the Fed has its eyes on the growing threat of deflation. Says CNNMoney.com: “A widespread drop in prices might seem like a good thing to most consumers, but the Fed and economists see it as another reason to worry.” A Fed chairman’s job, as you can see, is never done. From the story: The biggest problem with deflation is that when businesses need to continually cut prices to spur sales, they eventually respond by cutting production. That results in growing job losses, and could, in the worst case scenario, even cause a depression.And several economists say they are far more worried about the threat of deflation now than they have been in the past. The Federal Reserve may also be more concerned about deflation as well.The central bank cut its key interest rates to near 0% Tuesday. In its statement, the Fed said it expects inflation to “moderate further” but it stopped short of suggesting that inflation would drop “to levels consistent with price stability” as it has in prior statements.
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