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Will the Fed adopt new target for inflation?

Business Times - 19 Oct 2010


Will the Fed adopt new target for inflation?

Another round of QE is likely, but selling it to the US public may not be easy

By LEON HADAR
WASHINGTON CORRESPONDENT

A YEAR after the 9-11 terrorist attacks and as economists were warning of the threat of deflation, Ben Bernanke, then a Fed governor, delivered a speech, 'Deflation: Making Sure It Doesn't Happen Here', in which he proposed that the US government can always avoid deflation and its effects of 'recession, rising unemployment and financial stress' by cutting interest rates to zero and by printing more dollars.

'The US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost,' Mr Bernanke said.

And referring to a statement made by Milton Friedman, the Nobel Prize-winning economist, about using a helicopter drop of money to combat deflation, Mr Bernanke discus…