Beware the Bottlenecks

Throughout the news we constantly read about the Fed's fight against deflation. However, the Fed cannot ignore the other threat, capacity bottlenecks leading to inflation. Due to this recession we have witnessed numerous shortages in an assortment of items ranging from economy cars to consumer electronics. As the economy gains speed and demand increases more bottlenecks could form and consequently this could drive up prices and the Fed may have to intervene before the recovery effort is in full swing. Even though inflation is the bigger and scarier threat, it doesn't mean we shouldn't address the other side of the story. It should be interesting to see how the Fed responses to this see-saw dilemma.