Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : News Links and Chart Links -- Ignore unavailable to you. Want to Upgrade?

To: pallmer who wrote (4526)	1/3/2003 2:41:39 PM
From: pallmer	Respond to of 29600

WASHINGTON (Dow Jones)--The Federal Reserve's flurry of interest-rate cuts in the last two years appears to have helped the country avert a serious bout of deflation as economic growth fizzled, a prominent policymaker at the U.S. central bank said Friday. J. Alfred Broaddus, president of the Federal Reserve Bank of Richmond, previously had expressed worry that the U.S. could suffer a spiral of falling prices. That risk, he and other experts have said, is particularly acute in the country's current climate of low inflation, low interest rates and sluggish economic growth. But in a speech to the American Finance Association Friday, he expressed confidence in the Fed's ability to keep deflation at bay. "I am quite confident that we could deal with a deflationary threat successfully," Broaddus said. "In the present situation, the Fed's aggressive easing over the last two years appears to have pre-empted any significant drift toward either excessive disinflation or deflation," he said. "Moreover, even if disinflation unexpectedly intensified and the funds rate was reduced close to the zero bound, the fed would still have a number of channels available to re-establish a comfortably positive inflation rate," he said. The Fed has cut its key fed funds rate by 5.25 percentage points in the last two years, reducing it to a 40-year low of 1.25%. The central bank has said it isn't inclined to cut rates further. Broaddus said the Fed has achieved price stability in the last seven years by practicing an "implicit form of inflation-targeting." Although the Fed doesn't formally seek to achieve a specific rate of inflation, he said the central bank wouldn't be likely to tolerate a sustained core inflation rate "significantly above 2%." Broaddus said the Fed should build on its achievement by moving toward an explicit policy of inflation-targeting. "My personal preference for 'hardening' our credibility is to make the implicit target both explicit and quantitative - specifically, 1% to 2%, based on the core PCE index," he said, referring to the price index for personal-consumption expenditures. "Explicit, quantitative inflation-targeting is practiced by a number of other leading central banks around the world, and it would be consistent with the continuing evolution of fed policy toward greater transparency and accountability," he said. "More importantly, it would be a strong and visible step toward ensuring that the Fed's current high credibility for low inflation will be maintained indefinitely." -By Joseph Rebello, Dow Jones Newswires; 202-607-3931; joseph.rebello@dowjones.com (END) Dow Jones Newswires 01-03-03 1440ET- - 02 40 PM EST 01-03-03 03-Jan-2003 19:40:00 GMT Source DJ - Dow Jones