The Fed is walking such a tightrope that we are almost guaranteed a policy mistake.
Will it be staying at the party too long, or will it be taking the punchbowl away too soon?
Either which way, it is highly unlikely they will maneuver successful through the minefield.
For my money, it seems to me they have given every indication that they will stay too long at the party. But with so much slack in the system, I don't see CPI-type inflation coming through anytime before mid-2011 (at the earliest). With the pedal to the metal, this means bank reserves will continue to leak out into asset prices.
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