For the past two years, the central challenge of U.S. economic policy has been to find a way to stabilize the financial system and the economy without reinflating the bubble or going back to the days of consuming more than we produce. In the end, that may prove harder than it seems.
The difficulty, of course, is politics rather than economics. The Fed unquestionably has the tools to prevent an outburst of inflation, assuming it has the courage to use these tools. But curbing inflation might be hard politicially, since it could require the Fed to raise interest rates when economic recovery is still anemic.
The current situation illustrates why the economy would plausibly be better off without a central bank: beneficial actions today will often soiw the seeds of harmful actions tomorrow.