It’s time to worry like it’s 2003. This week the Federal Reserve’s open market committee (FOMC) startled financial markets by raising its terror alert level over the economy and declaring it would keep buying bonds to maintain its loose-money stance.
A run of bad data has raised the probability that the US economy, having dragged itself up a ladder, is about to slither back down a snake. And as the gap between actual and potential output grows larger, so does the small but non-negligible chance that the US will enter outright deflation.