Fed Governor Laurence Meyer appears to disagree with Chairman Greenspan's assessment that inflation isn't a significant threat. Meyer cautioned the rest of the Board of Governors that they must be careful about fueling inflation once the economy starts to recover.
But the Board of Governors should beware of inflation right now, even while the economy continues toward recession.
Right now, we have inflation and deflation simultaneously. Energy prices are going up and the money supply is growing quickly -- that's inflation. But at the same time, we see real estate, commodities, and consumer prices falling -- that's deflation. Result: The economy is heading straight into "stagflation" -- inflation with a dramatic slowdown in growth. And this combination could prove disastrous.
