Forecasters See Risk in Deflation, Then Inflation

WASHINGTON — Most economic forecasters believe near-term deflation and long-term inflation are the greatest risks to the U.S. economy, according to a survey by the National Association for Business Economics released Monday.

The Economic Policy Survey, taken from July 30 to Aug. 10, also revealed that just under 50% of the 242 respondents fear the Federal Reserve will begin tightening monetary policy "too late." They all expect 2011 to be difficult for countries such as Greece and Spain, with most expecting that one or more nations will be forced to restructure their debt or to call on an outside funding source.

According to the NABE, the majority of respondents believe monetary policy is currently positioned appropriately and do not think the Fed will alter its pledge to "keep interest rates exceptionally low for an extended period" this year.

Nearly 59% of respondents characterized current monetary policy as "about right," with the rest split between feeling it is too stimulative and too restrictive.

NABE asked members about the risks of deflation versus inflation as outcomes of current monetary policy. A plurality said monetary policy risks are tilted toward deflation in the short run but toward inflation later on.

Expanding further, the NABE said a substantial minority of 45% feel near-term deflation versus longer-term inflation will be the highest risk outcome. Roughly equal shares of 15% and 16% see outright inflation or deflation as the bigger risk, with the remaining 24% feeling that neither risk dominates.

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