DEFLATION OR INFLATION? REACTION OF THE FEDERAL RESERVE

Marie Peene

Overview

Situation of the Investors

Strategy of the Federal Reserve

Current situation and the future expectations

Situation of the investors

Torn between two extremes:

Deflation A decline in the general price level

Inflation An increase in the general price level

Situation of the investors

Deflation or inflation?

Economists: Deflation risks > Inflation risks Analyzing the economy in Japan:

Stagnation + years of falling prices

Is Deflation that bad? “The sun still rises over Tokyo”

Situation of the investors

Main problem:

Difficult to jump quickly from one extreme to another

Investors need to stay flexible

Strategy of the Federal Reserve

The federal Reserve = ‘the Fed’ Chairman = Ben Bernanke

First concern deflation Now concerned about continuing low inflation

Strategy of the Federal Reserve

Boost the economy:

pumping money into the economy

Quantitative easing Monetary policy to increase the supply of money

Higher inflation Quantitative easing

Current situation

Optimistic Small recovery

600 billion dollars Pushed the dollar lower Driven up the price of commodities

Second round of quantitative easing

Conclusion

A lot of efforts to help and boost the economy Still uncertainty about the future of the economy

Thank you for watching

Marie Peene