Summary - The Economy: Beware the Bottlenecks

The article, The Economy: Beware the Bottlenecks discusses the different potential outcomes of deflation and inflation during an economic recession. According to Peter Coy, the author of the article, inflation is not a problem because sellers want to get rid of excess inventory. However, experts believe that more bottlenecks similar to this could form causing prices to increase and the Federal Reserve to increase interest rates before we can sustain a recovery. James B. Bullard, President of the Federal Reserve Bank of St. Louis has seen this before in the 1970s and doesn't want it to occur again. Bullard states that the Federal Reserve "overestimated the amount of unused productive capacity in the system" causing high inflation. Economists believe that the scarier thing would be deflation. Factories are closing at record pace and automakers have been reducing capacity at a pace not seen since World War II. In the end, the Fed must be prepared to counter both, inflation and deflation.