Quantitative Easing New Term From the FED LOL

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WASHINGTON (MarketWatch) -- It's unlikely that the U.S. economy will experience a period of generally falling prices, known as deflation, in coming months, the president of Federal Reserve Bank of Richmond, Va., said Friday.

The issue of falling prices has risen to the top of the agenda of Federal Reserve policy makers after government price reports this week showed historic declines, both at the wholesale and retail levels.

The worry is that this may be a harbinger of deflation, which caused much damage during the Great Depression.

"We don't expect deflation," Richmond Fed chief Jeffrey Lacker told reporters after a speech in Washington.

With the federal funds rate at a low level of 1% and the economy weakening, many Fed watchers have begun to discuss other means of boosting the economy, also called "quantitative easing."

Lacker seemed confident that the Fed has sufficient ammunition, saying that the U.S. central bank has "a wide variety of choices" with which to conduct policy even if interest rates were to be lowered to zero.

"I don't see our inability to reduce the funds rate below zero as hampering our ability to make monetary policy," he said.

Economists said the Fed might buy mortgage backed securities or long-term government securities as part of some new strategy.

The Fed has announced that it has extended its next formal meeting to two days. Fed watchers believe these policy options would be under discussion.

Lacker said investors should remember that monetary policy is about the quantity of money. Interest-rate policy is at its core about this, he said.

Lacker said he expects a "significant "decline in gross domestic product in the final three months of the year. But he stuck with his previous forecast that growth will rebound in the second half of the year.

"I am not sure about the path what we'll see though 2009 but the center of my outlook is that we will see a recovery in 2009," he said.