Fed official at ready to take up deflation fight

By Associated Press
Posted July 29, 2010 at 11:09 a.m.

A Federal Reserve official says the central bank should revive a crisis-era program to buy government debt if the country seems headed toward a bout with deflation.
James Bullard, president of the Federal Reserve Bank of St. Louis, makes the case in comments to reporters and in a paper released Thursday. The weak economy poses the risk that the United States could tip into a Japanese-like bout of deflation, he says. That’s a widespread and prolonged drop in prices of goods, values of homes and stocks and in wages.

Bullard, a voting member on the Fed’s main policy-setting committee, thinks the deflation risk is low. Buying government debt would energize the economy and nip deflationary forces. Last year, the Fed bought up to $300 billion worth of Treasury securities.

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