The Fed, meeting for the last time before the midterm elections, said its measures show inflation is "somewhat below" desirable levels for the economy. That may sound strange, because inflation is often made out to be an economic evil.
And it can be, when it gets out of control. But its opposite can be even worse.
Once deflation takes hold, it can wreck an economy. Workers suffer pay cuts. Corporate profits shrivel. Stock values fall. People, businesses and the government find it costlier to pare debt. Foreclosures and bankruptcies rise.
And people spend less, convinced that prices will fall even further if they just wait. That trend has already emerged in the housing market. Many would-be buyers are standing on the sidelines, waiting for home prices to fall further.
Wednesday, September 22, 2010
Unusual Worry: Is Inflation Too Low? Federal Reserve Worries Prices Not Going Up Fast Enough
In the September 22, 2010 article "Unusual Worry: Is Inflation Too Low? Federal Reserve Worries Prices Not Going Up Fast Enough," Associated Press economics writer Jeannine Aversa provides further evidence that the macroeconomic policy goal is LOW inflation, not NO inflation. Here is an excerpt: