If Inflation Droops, Federal Reserve May Pump It Up

It’s tough for consumers to rationalize how inflation could be a good thing, especially if they haven’t received pay increases in years, but increasing costs are believed by many to be a sign of a healthy economy. That’s why Federal Reserve Chairman Ben S. Bernanke said Wednesday that the central bank will keep a close eye on inflation levels and may altar monetary policy to maintain the phenomenon if prices start to level off.

Reuters quotes Bernanke’s response to a question about inflation at a Cleveland forum:

“If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation.”

Businesses need to grow in order to raise their stock prices and employ more people, and one way to do that is to reap more profits by charging higher prices. In order to combat the recession and spark economic growth, the Fed has taken several drastic measures, including lowering benchmark interest rates to virtually 0 percent.

Bernanke says Fed would act if inflation falls [Reuters]