January 3, 2009 / 11:21 PM / 11 years ago

Bullard: Inflation target would aid deflation fight

SAN FRANCISCO (Reuters) - Federal Reserve Bank of St Louis President James Bullard said on Saturday that an explicit inflation target would help policy-makers prevent either deflation or inflation from taking hold in the United States.

“An inflation target would help focus expectations,” he told a panel discussion during the annual meeting of the American Economic Association.

Bullard said that with Fed interest rates nearly at zero, an inflation target would also help send signals to the private sector that would normally be communicated by changes in official borrowing costs.

“Maybe now would be a particularly good time to do that because you have this possibility of expectations drifting off to deflation or a lot of inflation. ... I think it would help,” said Bullard, who is not a voting member of the Fed’s interest rate-setting committee this year.

Reporting by Alister Bull, editing by Leslie Adler

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