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They must steer between the shoals of short-term deflation and the longer-term risk of accelerating consumer prices.
Beal thinks short-term deflation is very likely for the next year or two.
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Next up is Demosthenes Tambakis, fellow and director of studies in economics and finance at Pembroke College, Cambridge.In the short-term, evaluating deflation risk requires an assessment of inflation expectations.
The only difference being that economists define negative inflation as something short-term, while deflation is longer-term.
It seems to me the short-term battle is deflation and the long-term battle is inflation.
In the midst of deflation, short-term interest rates eventually fell to zero, largely handcuffing the central bank.
In a conference organized by the Boston Fed in October 1999, Mr. Ueda warned that fighting deflation when short-term rates are at zero "will be a lot more painful than you can possibly imagine".
Expected deflation keeps short-term interest rates stuck hard against the zero lower bound, and puts a somewhat higher floor under long-term rates (they can't go all the way to zero, because they price in the possibility that short rates may eventually rise but can't fall).
Critical choices must be made between short-term stimulus measures needed to counter deflation and the longer-term fiscal prudence required to rebuild national saving.
Responding aggressively to financial panic, recession and the threat of deflation, they lowered short-term interest rates close to zero and many then plunged into the realm of the unconventional, buying government debt and extending vast new loans to banks.
Forbes: So short term, by deflation, you mean people are going to have to continue to liquidate assets to cope with debts?
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com