Bernanke’s 2002 thoughts revisited
With food inflation hitting record highs, and oil at over $115 per barrel, it’s difficult to see that policy makers might be more worried about deflation than inflation. In fact a bit more inflation in the global economy might be secretly felt to be a good thing – anything that erodes the consumer’s debt burden could help economic growth get back towards trend. But as Jim pointed out (see article here) credit and banking crises are always disinflationary, or outright deflationary – and ditto recessions. We still expect lower rates, but also that other non-monetary policy measures will continue to be used (tax refunds, bank bailouts etc.). This fascinating 2002 Fed paper by Ben Bernanke (“Deflation: Making Sure “It” Doesn’t Happen Here“) sets out what the current Fed Chairman thinks can be done when interest rates hit zero, and deflation threatens.
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