A New Spotlight on Japanese-Style Deflation

"In a scholarly paper that was released today James Bullard, President of the Federal Reserve Bank of St. Louis, stated, "The U.S. is closer to a Japanese-style outcome than at any time in recent history". As everyone knows, the Japanese economy has undergone a period of extremely slow growth with periodic recessions combined with price deflation over the past 20 years. Its stock market is still about 70% below the 1989 peak while property values are still depressed despite ultra-low interest rates and massive government spending. While the paper concluded that this was not the most likely outcome, the release caused an immediate intra-day drop in the stock market that was partially reversed later in the session. Bullard’s prescription for avoiding this highly undesirable outcome was to advocate more reliance on additional quantitative easing (QE) rather than extremely low interest rates..."