St. Louis Fed's Bullard: Fed risks creating self-fulfilling deflation
Dec. 2 (Bloomberg) -- The Federal Reserve may provoke deflation by cutting the main interest rate, and policy makers should consider relying on other tools to revive the economy, St. Louis Fed President James Bullard said.
“I’m more concerned at these very low levels about the Japanese outcome” last decade, Bullard said today in an interview, while noting that deflation isn’t an immediate threat. Japan’s central bank “went to zero” with its main interest rate, and “deflation becomes a self-fulfilling thing and you are stuck at zero.”
Fed policy makers, confronting what may be the worst recession since World War II, will reduce the target interest rate at a Dec. 16 meeting by a quarter-point to 0.75 percent, according to economists surveyed by Bloomberg News. While Bullard himself may not support another cut, he said the Fed is debating how to use its other policy tools and communicate its intentions.
The full interview with Kathleen Hays here.
This is a truly eye-opening interview. Watch especially as Kathleen Hays grills Bullard on his almost preposterous comparison between the current recession and the 1990-91 downturn.