Every effort needs to be made to try and offset the costs of Katrina and Rita by reductions in other government programs, especially those that are wasteful, duplicative and ineffective.
The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending.
The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
I assure this committee that, if I am confirmed, I will be strictly independent of all political influences… essential to that institution’s ability to function effectively and achieve its mandated objectives.
We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.
