In the topic “Greenspan defends deflation worries” the writer discuss about the deflation and its effects in the US economy. Here we can get a clear picture about different aspects of deflationary effects. Here we see that long-term interest rates have been rising sharply in recent week, reflecting investor disappointment over this policy. As a result of deflationary effect the price of bond falls down. Fed officials talked about some unconventional method to lower interest rate but in the June meeting they made no mention of these method. And after this meeting when fed cut interest rate by quarter percent instead of half percent, the bond price began tumbling and the long-term interest rates rising. The interest rate on mortgage rises from 5.21 to 6.32 percent.  Greenspan suggested the rapid reduction of interest rate to overcome this problem. He rejected the use of a device, which is known as “inflation rate targeting”. In this case the central Bank sets an optimal target for inflation for the year and then manages interest rate policy in an effect to achieve that target. This policy is rejected by Greenspan because he prefers more flexible approach to policy making rather than establishing an inflexible target. So finally we can say that the policy is going on to stop the deflation and combat with the problem