A nice debate on inflation from Bloomberg video.

Arguments for deflation or inflation is not to worry:
>excessive capacity and output gap;
>debt deleveraging;
>rising unemployment;

Arguments for inflation (some are my own arguments):
>the Fed put too much money into the system, once economy recovers, the excess liquidity is hard to reverse and money velocity will snap back very quickly;
>the Fed is getting out of its normal monetary policy areas and widely engaged in credit expansions. This may comprise the Fed’s independence and the Fed may face pressure from the Congress not to raise rates giving rising unemployment rate, which is forecast to surpass 10%;
>the temptation of using inflation to erode debt (or monetizing debt);
>a divergence may appear: a slow gradual recovery in the economy (stagnation), and sharp rising of commodities prices, including oil (partly pushed up by vast energy needs in the faster growing emerging markets, especially China), leading to the 70s-like “stagflation”.