"Deflation is a real possibility in the current environment," according to St. Louis Fed President James Bullard, while speaking at an event hosted by the French Central Bank in Paris on Friday.
The central banker said that if people begin to anticipate negative inflation due to a longer-than-expected global recession, the phenomenon could spark a downward spiral in prices, resulting in a deflationary environment.
In January, the Federal Reserve projected GDP in the United States will decline between 0.5% and 1.3% in 2009 and grow between 2.5% to 3.3% in 2010.
The unemployment rate is expected at between 8.5% to 8.8% in 2009 and between 8.0% to 8.3% in 2010.
PCE inflation is expected to grow between 0.3% and 1.0% in 2009 and 1.0% to 1.5% in 2010.
By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2009