Is Deflation A Real Concern?

Deflation will likely be the watchword when Federal Reserve Board Chairman Alan Greenspan gives members of Congress his view on how the economy is doing. At a hearing of the Joint Economic Committee.

Two weeks ago, Fed policymakers said deflation was a concern. Analysts will be looking to see if Greenspan elaborates on those concerns Wednesday.

Worries about deflation are seen as a reason to let the dollar decline further because it would boost the ability of American companies to raise their prices against import competition.

A weaker dollar makes imports more expensive for American consumers and U.S. exports cheaper in overseas markets.

Many expect Greenspan simply will reiterate that deflation is a fear, but only a remote one. But some also say its mere mention two weeks ago was a signal the Fed will do what it can to boost growth to keep deflation from setting in.

Lawmakers and Wall Street will also be looking for hints about whether the Fed plans to cut interest rates further. At their last meeting, policymakers left rates unchanged — but hinted more rate cuts could be coming given the ongoing concerns about the sluggish economy.