In a statement from its top policy group, the Federal Reserve acknowledged yesterday that the faltering economy could cause deflation; a dangerous economic condition in which wages, prices, profits and asset values can spiral downward. Many analysts believe these fears could result in rate cut when the Fed meets next month. Japan, whose economy has been weak for over a decade, is currently caught in a deflationary spiral.
See "Fed Fears A Spiral Of Falling Prices: Deflation Risk May Prompt Rate Cuts", John M. Berry
John M. Berry, The Washington Post, May 6, 2003