2/18/2009

The approach taken by the Federal Reserve to expand U.S. money supply to avoid deflation is not systematic enough, according to St. Louis Federal Reserve President James Bullard. "While the monetary base has expanded at an extraordinary fast pace during the fall and winter, much of that expansion has been closely related to the Fed's lender of last resort function, and cannot be counted on to keep expectations of disinflation and deflation at bay," he said. "Because of this, the Fed needs a more systematic method of keeping the persistent component of monetary base growth rates elevated in order to combat the risk of a deflationary trap."

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