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Fed on Guard Against Deflation

Federal Reserve Chairman Alan Greenspan told a congressional panel1 Wednesday that the Fed is ready and able to do whatever necessary to guard against the remote possibility that a weak economy will trigger a debilitating bout of falling prices.

“We see no credible possibility that we will at any point, irrespective of what is required of us, run out of monetary ammunition2 to address problems of deflation or anything similar to that which disrupts our economy,” he said.

Greenspan stressed that the Fed does not see the chance of deflation —a widespread, prolonged drop in prices3— as an “imminent, dangerous threat to the United States, but a threat that even though minor is sufficiently large that it does require very close scrutiny.”