The United States does not face a problem of rising inflation for several years and also does not risk a damaging spell of falling prices, Paul Volcker, former chairman of the Federal Reserve, said Monday.

"Inflation is not a problem right now. It won't be a problem next year, it won't be a problem for several years," said Volcker, who is now chairman of the Obama administration's Economic Recovery Board.

"I see no possibility, frankly, that a deflation will take place," Volcker said during a panel discussion on financial reform at Boston University.
"Over a period of time, price stability will be conducive to a strong economy," he added.

The Fed, under Chairman Ben Bernanke, is widely expected to go ahead with efforts to spur inflation, which the central bank sees as its best chance to lift an economy that some see as being on the verge of falling back into recession and a downward spiral in business activity.

Volcker made his reputation in the 1970s when he raised benchmark interest rates sky-high to pull the nation out of a period of stagflation -- a combination of high inflation and stagnant economic growth.

The current economic problems will take time to work out, Volcker said, telling a Boston University freshman that job prospects should be better by the time he graduates.

The United States, facing massive budget deficits, is caught in a tough situation where a big new spending program is probably unfeasible, but draconian budget cuts like those now being enacted in the UK are also unlikely, he said.

Still, the former Fed chief said large infrastructure projects were worthy of government funding.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., agreed.
"If we're going to spend money, and borrow to invest, be like a corporation and borrow for something that will improve our balance sheet," Bair said. "Let's invest for the long term."

With U.S. interest rates at rock bottom, the Treasury should consider extending maturities on debt issues, Bair said. "I don't understand why we're not doing that. It's low hanging fruit."