For any manufacturing facility that is looking to increase its capacity, a significant factor to be considered right now is the question of whether continuing inflation is on its way. In various areas, prices have risen. Do these rises portend a significant, general rise in price levels throughout the economy? If yes, then adding high-end equipment using borrowed funds is a good idea, but hiring ought to be minimized. If no, then now might instead be a good time to hire.
Recent actions of the Federal Reserve provide the main reason to expect that inflation might be coming. The Fed’s second quantitative easing, or “QE2,” involved creating a pile of money as big as the cruise ship of the same name. (I exaggerate.) Yet those actions of the Fed (scheduled to end in June) might not automatically produce 1970s-style price increases. In fact, there are reasons to suspect they won’t. Read more here.
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