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Draghi: The latest staff projections indicate continued downside risks to the inflation outlook One word: deflation.
AS chatter has grown about the possibility of a double-dip recession, so, too, have fears about another "D" word: deflation.
But weakness remains a bigger worry than an overheated economy because of the small possibility of an "unwelcome substantial fall in inflation," the Fed said, not using the word deflation.
Some fuzzy math: In the first 30 days of December 2000, according to Nexis, only six articles in major news sources contained both the word "deflation" and the phrase "United States"; none of those articles suggested that deflation in this country was a real possibility.
But now, even the word "deflation" is starting to cross the lips of commentators as the past year's financial crisis begins to affect real jobs and real wages.
Though he didn't use the dreaded "D" word (deflation, not depression) Hatzius predicted a core rate of inflation of only 0.9% by yearend 2010 and a negative federal funds rate The only good news in this expectation is that it means investors in 10-year Treasury notes at 3% or better have a wide margin of risk (250 basis points) before their dollars will lose value.
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Whether the words "deflated", "deflation", "deflating" or any other variant came up in the course of that chat is open to debate.
The Fed's statement on Tuesday avoided the words deflation and double dip recession.
In other words, deflation discourages borrowing and spending, the very things a depressed economy needs to get going.
They only defer an investment and hold cash if they think they can buy an asset for less later in other words, deflation.
It was the last word in deflation: 'Darlings, you were wonderful,' he said.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com