Treasury warned of deflation threat

Aug. 4, 2010 at 6:03 PM

WASHINGTON, Aug. 4 (UPI) -- The chairman of a U.S. financial trade group advisory committee has added his name to a growing list of those concerned deflation may be around the corner.

In a letter to U.S. Treasury Secretary Timothy Geithner, Mathew Zames, who heads the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association, said the economy has gone from "firmly transitioning to a self-sustaining expansion" in May to a new phase that centers on "sluggish personal outlays."

Manufacturing data "suggests moderation is under way," Zames said. In addition, gains in the service sector have been "meager," he said.

"Faced with high unemployment and very low inflation, the recent loss of growth momentum has raised concerns that the economy could slip into deflation," he wrote.

Deflation, a period marked by falling prices, tends to stall the economy as consumers hesitate to make discretionary purchases and falling prices limits profits, which can trigger layoffs.

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