Central Bank Can Protect US From Deflation: Fed Official

The Federal Reserve can stop deflation from striking the US economy, which already has been badly affected by the coronavirus the central bank's vice chair said Monday.

Inflation had been lingering for years below the Fed's two-percent goal, and with the pandemic's impact on normal activity, prices could fall.

Demand has been impacted "very adversely," Richard Clarida said in an interview on Bloomberg TV, calling the effects "disinflationary."

"I think we have the tools to keep the US economy out of deflation and to support the economy through this challenging period," Clarida said.

The Fed has deployed unprecedented emergency efforts to shore up the financial system including pumping trillions of dollars of liquidity into the once-healthy economy that's been turned upside down by the virus, and supporting lending to households and companies.

Businesses nationwide have closed to stop the spread of COVID-19, while demand has dropped as consumers have stayed home, leading to about 17 million people losing their jobs as of mid-March.

How the US economy will recover from this crisis depends on how quickly the virus is brought under control.

Scenarios range from a V-shaped recovery, the best-case scenario in which the economy bounces back quickly, to a much slower "checkmark" restart if the absence of a vaccine or treatment if the virus breaks out again.