The Federal Reserve is engaged in the tricky business trying to nudge the economy while avoiding action that could spark inflation.
Fed Chairman Ben Bernanke and his Board of Governors continue to insist, most recently by announcing a two-year cap on interest rates, that their policy is measured and prudent.
But last week it was announced wholesale prices in the United States increased at the highest rate in six months. Some economists believe the report is not cause for concern. Higher prices for a few specific products, including trucks and tobacco, were to blame for the July surge, they point out. A trend toward lower prices, especially for oil and gas, should keep the overall inflation rate low, they predict.
We hope so. But the Fed's policy - it has held the short-term interest rate it sets at nearly zero since early 2008 - exerts upward pressure on prices. The whole idea of lower interest rates is to create more demand in the economy.
Bernanke and others in the Fed believe the recession has artificially reduced demand for goods and services, and their low interest rates are merely restoring the economy's normal balance.
The two-year moratorium on higher interest rates is intended to give consumers and businesses more confidence in the future. However, if it seems the action is not just priming the pump but may be leading to a flood of inflation, the Fed should take steps to reverse the trend.