Matters Financial

12 May 2003


Fed Voices Deflation Fear
To most people, falling prices does not seem to be much of a problem. In fact, it sounds like a great idea -- arranging fiscal and monetary policy so that prices come down. However, the latest Federal Reserve Open Market Committee Meeting voiced the fears of the governors that the US could be threatened with deflation, i.e., falling prices, and that it stands ready to fight. The Fed had better because the threat is real. Click here to read more.

ECB May Unwisely Lower Inflation Floor
The European Central bank is considering a change in policy that would require member states to keep their inflation rates to 1% or lower. This would be a sound idea if growth were at a break-neck pace, jobs were in search of workers (rather than the other way round), and if spending were too high. Since none of that applies, perhaps, the ECB should go back to finding a replacement for the alleged crook they want to replace Wim Duisenberg as head of the body and leave things as they are. Click here to read more.

Brazil's Currency Too Strong?
Pity Brazilian President Luiz Inacio Lula da Silva. Brazil's currency, the Real, is strengthening as capital flows into the country as foreigners invest in the economy there. Such capital flows are a sign of economic health, but the Real's rise may be too fast, which would undo the progress made on the external accounts. President Lula has suggested intervention in the currency markets to stop this. He should not -- not because it isn't the right policy, but rather because it won't work. Click here for our view.