Will central banks inflate money further to create price inflation?
"Monetary policy makers talk about cutting rates further for price stability, but central banks might need to pump money into the corporate sector.
With the industrial economies of the West suffering a deep and long recession, officials from the Federal Reserve and the European Central Bank are taking action to stave off deflation, marking a U-turn from the central banks' concerns about increasing inflation just a few months ago.
An alarming rise in commodity prices, particularly oil, brought distress to European consumers last year and prompted expectations of inflation to reach 4.4% in the United Kingdom. (See "Europe Bit By Inflation Bug.") But a dramatic drop in crude costs, spurred by weak demand, is now bringing fears of the opposite malady, pushing monetary policy strategists to move swiftly.
Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association in San Francisco on Sunday. 'It is increasingly likely that inflation will fall to undesirably low levels,' said Yellen, adding that the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock bottom."