More Fed Keynesianism from Vice-Chairman Roger Ferguson: ”In the quarters ahead and as noted at the conclusion of our policy meeting earlier this month, the Federal Reserve has to guard against further declines from the already low prevailing level of inflation. And we shall be on guard against such a development.... Indeed, given the existing level of slack in labor and product markets, the economy should be able to enjoy above-trend growth for some time without putting undue pressure on resources. Recognizing that the economy is experiencing price stability, I also accept that the central bank should work to create conditions conducive to closing the gap between output and the ability of our economy to produce, thereby fostering utilization of resources, including labor. ”
By the way, for a fine example of poor logic, unsound reasoning and the propagation of myths, this whole speech is a classic! For a more reasoned approach — though not without its own flaws — check out the Cleveland Fed’s article in which at least deflation (though somewhat loosely defined) is not seen as an unmitigated ill.