The Economy: Beware the Bottlenecks

In the article "The Economy: Beware the Bottlenecks", Peter Coy talks about how the U.S. economy's isolated shortages early in the recovery could lead to inflation. Typically, when a country is in a recession, most items are on sale so inflation isn't yet a problem since sellers are eager to dump their excess supplies. However, it is worrisome since there are some scattered shortages in a variety of items. If more are on the rise, it could drive prices up and force the Federal Reserve to raise rates before the recovery ever hits its stride. Whatever happens, James B. Bullard, president of the Federal Reserve Bank of St. Louis says, "I don't want to replay the '70s." Luckily, many experts view these shortages mainly as short-term problems that won't harm the overall economy. Meanwhile, the Fed would have an easier time just trying to focus on a different enemy, deflation. No matter what, the central bank must be prepared to fight a war on two different fronts.