Inflation’s unlikely to keep at bay much longer. To date, banks have
been hoarding new money pumped into the system as excess reserves (to
protect themselves against grotesque losses like the $7.6 billion
Citigroup reported losing last quarter). However, banks will again
begin to lend once they feel there’s room to maneuver, and the
resulting burst of growth in the money supply will lead to rapid
inflation.
Recently, accepting this likelihood, Harvard economics professor
Gregory Mankiw outlined three reasons why Bernanke’s still going to
refuse to fight inflation.