But hold on. Just because faster economic growth is a force for price stability doesn't mean slower economic growth is inflationary. On the contrary, we can expect falling demand to force companies to hold down prices. What's more, global forces work in the same direction. Already, competition from goods manufactured cheaply in China by both local companies and foreign multinationals is putting downward price pressure on Japanese and American rivals.
Japan is in the grips of a deflationary spiral.
U.S. discount retailers are expanding into Europe and undercutting the Continent's established merchants. The Internet, with its promise of enormous efficiencies, is constantly expanding its reach. Prudential Securities Inc. No doubt about it, the Fed does make mistakes. But the Fed is an institution scarred by the inept policies it pursued during the 1920s and '30s and frightened by the enormous missteps of the Japanese monetary authorities in the '80s and '90s. The Fed isn't infallible, but it is well-equipped to stave off economic Armageddon.