For now, Fed officials are more worried about falling prices, than rising ones.The Fed didn’t use the word “deflation,” which is a dangerous bout of falling prices, but officials noted “some risk of a protracted period of excessively low inflation.”
Falling prices sound like a gift at first – at least to consumers. But a widespread and prolonged decline can wreak more havoc on the economy, dragging down Americans’ wages, and clobbering already-stricken home and stock prices. Dropping prices already are hurting businesses’ profits, forcing them to slice capital investments and lay off workers.
America’s last serious case of deflation was during the Great Depression in the 1930s. Japan was gripped with a period of deflation during the 1990s, and it took a decade for that country to overcome those problems.
See it here in all of its glory. A revelation as to why will come shortly.