Quote from btud:
Quantitative Easing is not immediately inflationary. In fact more important than Fed "creating money supply" are the commercial banks. The commercial banks are in fact the true driver of inflation. They are really the ones which inject the fed new money into the real economy. If the banks just hoard the fed's moeny into reserves, there is no inflation. In fact there is deflation, credit crunch, falling asset prices. Inflation will begin at the precise moment when banks will start lending again. That's what Fed and everybody else is desperately trying to do. The banks unused reserves at this moment are at humongous levels. It is as if you have all your margin unused. Normally the reserves shold be close to 0 (that is banks fully levered up). If all these already huge reserves are used to create new loans, the multiplier effect will kick in (remeber, we're in a fractional reserve system). And the huge amounts of money now hoarded would get into the economy multiplied by about 9. What would that translate into ? INFLATION! That moment will have to be monitored very closely by the Fed, and the new money will have to be sterilized quickly, otherwise it will soon turn to hyperinflation. My opinion is that the Fed will not react quicly enough, and we will have problems with very high inflation rates in the not very far future. That will mean probably a new commodity bubble.
