Ezra refers to a good post by James Hamilton on how recent Fed actions — specifically, growing its balance sheet and changing its composition in historically unusual ways — could compromise its ability to fight inflation. He writes:

If you feel like scaring yourself a bit this afternoon, read James Hamilton’s post arguing that the conditions are increasingly appropriate for hyperinflation. “To my knowledge,” Hamilton writes, “every hyperinflation in history has had two key ingredients: (1) budget deficits that could not be resolved politically, and (2) a central bank that assumed the obligations that the fiscal authority could not.”

Hyperinflation may, as some of Hamilton’s commenters argue, be a bit of an exaggeration, but inflation isn’t.

We need not worry about hyperinflation. Or rather, in a world where hyperinflation is a real possibility, hyperinflation is the last thing we’d be worrying about. There are certainly circumstances under which America could face uncomfortably high inflation down the road, the result of which would most likely be Fed tightening and a painful double-dip recession. But there are two key points to be made about this.

One is that “uncomfortably high” given present conditions is pretty darn high. In the midst of deep recession, inflation isn’t nearly as nasty as it might otherwise be. For one thing, when dollars are getting weaker people don’t want to hold dollars, and so they spend them, which is a good way to make a dent in the shortfall in demand. For another, inflation will help housing markets clear. And for another, a weaker dollar should goose American exports.

The second, and related, point is that inflation is one of many concerns that we face at the moment. Fed independence is a big issue, and 20% annual inflation is something we’d prefer to avoid, but so is, say, a 6% contraction in output. I’d love for Congress to allocate all the necessary funds and then turn around and take the necessary steps to rein in the deficit, but given actual political constraints I’m extremely glad the Fed has done what it’s done — I prefer to see some action appropriate to the scale of the downturn taken and roll the dice with inflation. As Yglesias wrote earlier today:

Talking about a different issue last week, I heard Tyler Cowen forcefully make the point that you have to think of the political constraints as a real policy consideration.

Another way to think about this is that maybe all the folks worried about inflation should instead focus their ire on the supermajoritarian rules constraining Senate action.