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Essay / Research Paper Abstract
7 pages in length. On May 6, 2003, the US Federal Reserve stated that "the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level" (US Federal Reserve, 2003), a statement that not only sent a minor shockwave throughout global economies but also "set off a debate about whether the U.S. economy is in danger of experiencing outright deflation" (Wachovia Securities, 2003). Critics from both sides of the issue agree there is cause for concern, however, it is the level of concern upon which they differ. Bibliography lists 15 sources.
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File: LM1_TLCinflaUK.rtf
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already low level" (US Federal Reserve, 2003), a statement that not only sent a minor shockwave throughout global economies but also "set off a debate about whether the U.S. economy
is in danger of experiencing outright deflation" (Wachovia Securities, 2003). Critics from both sides of the issue agree there is cause for concern, however, it is the level of
concern upon which they differ. "Usually its inflation -- rising prices--that worries the Federal Reserve Board. Not right now" (Rice, 2003, p. 75). II. UNDERSTANDING THE IMPACT
Statistics show a significant decline in goods and services over the last six months, which is what prompted the US Federal Reserve to make its somewhat alarming statement (Borst, 2003).
One might consider this downturn a boon for consumers who, because of the lower prices, will pump more money into the economy; however, such a situation has the potential
for creating a problem for the United States economy "that hasnt surfaced since the Great Depression" (Stark et al, 2003). Clearly, everyone expected the Federal Reserve to maintain the
current interest rate in light of the trend that has been established over the recent past, yet it was very much a surprise to hear its prognostication for the near
future (Gosselin, 2003), indicating how "the Fed would be forced into deflation-fighting mode" (Coggan et al, 2003, p. 15). The significance of the Federal Reserves statement for UK and European
macroeconomic policy making lends itself to economic relationship between these economic powers, inasmuch as the United States is often the indicator of economic stability. As such, the indication given
by the Federal Reserve is that if prices do not rise fast enough to offset the potential for deflation, the repercussions will be felt far beyond the American border.
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